IRA Owners Prove to Be Diligent Retirement Savings Stewards

More than two-thirds have consulted an adviser to build a financial strategy.

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.

ICI’s full report can be downloaded here.