ICMA-RC, a provider of retirement plans exclusively for public-sector employees, is participating in America Saves Week.
ICMA-RC
is promoting several digital resources specifically for the week,
including its new “Grow Your Savings” calculator, which shows
participants how their savings can add up over time by increasing
contributions to their retirement plan. The calculator also shows the
effects of compound interest on savings.
In addition to
distributing electronic resources, during America Saves Week ICMA-RC
representatives across the country will be participating in benefits
fairs, conducting one-on-one meetings, and hosting education sessions.
America
Saves Week is a national campaign to encourage individuals and families
to save money and build personal wealth. Held February 22 through 27,
2016, the week gives employees an opportunity to renew their focus on
saving and planning for retirement.
Nearly
one-third of U.S. households owned individual retirement accounts (IRAs) in
2015, and a majority of them have developed a strategy for managing income and
assets in retirement, according to the Investment Company Institute.
More than two-thirds of traditional IRA-owning households (68%) have consulted
a professional financial adviser to build a strategy, according to ICI’s
report, “The Role of IRAs in U.S. Households’ Saving for Retirement, 2015.”
Eighty-two percent have taken three or more steps in developing a strategy, 76%
have set aside emergency funds, 75% have developed a retirement income plan,
and 75% have reviewed their asset allocation.
Among those
with a strategy, besides consulting a professional financial adviser, 28% have turned
to friends or family, 21% have accessed written materials such as a newspaper,
20% have used a financial website, and 9% have employed a financial software
package.
ICI also
found that IRAs held $7.3 trillion in assets at the end of the third quarter of
2015, representing 31% of total U.S. retirement market assets—up from 18% two
decades ago. Traditional IRAs are the most common type of IRA, held by 30.4
million, or 24.4% of, U.S. households in mid-2015. The next most common is Roth
IRAs, held by 20.3 million, or 16.3% of, U.S. households.
NEXT: What fuels withdrawals?
IRA owners
tend to hold onto their assets well into retirement, ICI found. The majority of
traditional IRA withdrawals in tax year 2014 were made by retirees, most of
which were required minimum distributions starting at age 70-1/2. These
withdrawals were used for emergencies (cited by 65%), living expenses (62%),
reinvestment (45%), health care (34%) or education (13%). Only 11% used their
IRA money on a big-ticket item other than a home, such as a car or boat.
“IRA owners
tend to steward their money to and through retirement,” says Sarah Holden, ICI senior director of retirement and investor research. “They plan and
often research important decisions such as rollovers and withdrawals. Few tap
into their IRAs before retirement, and most use financial advisers and other
resources to develop strategies to effectively manage their savings and income
in retirement.”
Despite the sizeable assets in IRAs, only 14% of U.S. households contributed to
an IRA in tax year 2014, and very few eligible households made catch-up
contributions. Rather, rollover activity continues to fuel IRA growth, ICI
says. In 2015, almost half of all traditional IRA-owning households had IRAs
that included rollover assets. More than two-thirds (69%) of rollovers to an
IRA in 2015 were due to a job change, layoff or termination, while 34% were due
to retirement.
When rolling over assets from their former employer’s retirement plan, 81% consulted
multiple sources of information, with the majority consulting a professional adviser.
When asked
for the reasons why they made the rollover, the three most common were: to
obtain more investment opportunities (21%), not wishing to leave assets with
their former employer (21%) and to consolidate assets (16%).
NEXT: Characteristics of IRA owners
People of
all ages own IRAs, with older-working Americans being the most likely to own
them. In total, 69% of IRA-owning households were headed by individuals 45 or
older, compared to 28% of households headed by an individual 35 to 44 and 24%
of households headed by an individual younger than 35.
More than 80% of IRA owners also have either a balance in an employer-sponsored
retirement plan or defined benefit plan coverage. All told, nearly 75 million,
or 60% of, U.S. households had retirement plans through work or IRAs.
The likelihood of owning an IRA increases with household income; 61% of
households with income of $200,000 or more a year own an IRA. This falls to 56%
of households with income between $100,000 and $199,999 and to 43% of
households with income between $50,000 and $74,999.
IRA-owning households are more willing to take investment risk: In 2015, 30% of
IRA-owning households said they would be willing to take above-average or
substantial investment risk, compared to 21% of all U.S. households. This
bifurcation has remained consistent since 2007.
The ICI study also found that the longer a household has owned an IRA, the
higher its average balance. Those that have owned an IRA for 20 years or more
have an average balance of $235,900, while those who have owned an IRA between
10 and 19 years have an average balance of $126,100. The average balance for
those who have owned an IRA for less than 10 years is $69,400.