Mutual Funds Primarily Used for Retirement Savings

In 2009, 76% of mutual fund-owning households indicated that their primary financial goal for their fund investments was saving for retirement, according to the Investment Company Institute (ICI).

The 2010 Investment Company Fact Book released by ICI found 90% of households that owned mutual funds held shares inside workplace retirement plans, individual retirement accounts (IRAs), and other tax-deferred accounts. 

Among those households that made their first mutual fund purchase in 2000 or later, 68% did so inside an employer-sponsored plan. Among those households that made their first purchase before 1990, 56% did so inside an employer-sponsored plan.  

Although 69% of mutual fund investors owned funds outside of employer-sponsored retirement accounts, many were also saving for retirement. Fifty-two percent of mutual fund–owning households held funds in their IRAs—in many cases, due to rollovers from 401(k)s or other employer-sponsored retirement plans.  

At year-end 2009, mutual funds accounted for $4.1 trillion, or 25%, of the $16 trillion U.S. retirement market, according to ICI. The remaining $11.9 trillion of year-end 2009 retirement market assets were managed by pension funds, insurance companies, banks, and brokerage firms. The $4.1 trillion in mutual fund retirement assets represented 36% of all mutual fund assets at year-end 2009.  

Assets in defined contribution plans have grown more rapidly than assets in other types of employer-sponsored retirement plans over the past quarter century, increasing from 27% of employer plan assets in 1985 to 40% of assets at year-end 2009. At the end of 2009, employer-sponsored DC plans—including 401(k) plans, 403(b) plans, 457 plans, Keoghs, and other DC plans—held an estimated $4.1 trillion in assets. With $2.8 trillion in assets at year-end 2009, 401(k) plans held the largest share of employer-sponsored DC plan assets.  

Two other plan types—403(b) plans and 457 plans—held another $851 billion in assets. The remaining $483 billion in DC plan assets were held by other DC plans without 401(k) features. 

At the end of 2009, $1.5 trillion of 401(k) plan assets were invested in mutual funds. Mutual funds’ share of the 401(k) market increased to an estimated 55% at year-end 2009, up from 51% at year-end 2008, but still below the 57% share reached in 2007. 

Retirement is not the only financial goal for households’ mutual fund investments. Forty-nine percent of mutual fund-owning households reported that reducing their taxable income was one of their goals; 46% listed saving for an emergency as a goal; and 26% reported saving for education among their goals.

How Retirement Savers are Investing 

Retirement savings accounts were a significant portion of long-term mutual fund assets (47%), but were a relatively minor share of money market fund assets (12%). Similarly, as a share of households’ mutual fund holdings, retirement savings represented 50% of households’ long-term mutual funds, but only 18% of households’ money-market funds, according to the 2010 Investment Company Fact Book released by the Investment Company Institute (ICI). 

Of the $4.1 trillion in mutual fund retirement assets held in IRAs, 401(k) plans, and other retirement accounts at year-end 2009, $2.3 trillion, or 58%, were invested in domestic or foreign equity funds. Domestic equity funds alone constituted about $1.8 trillion, or 44%, of mutual fund retirement assets. By comparison, about 45% of overall fund industry assets—including retirement and nonretirement accounts—were invested in domestic and foreign equity funds at year-end 2009.  

At year-end 2009, $1 trillion, or about 25%, of mutual fund retirement assets were invested in fixed-income funds (bond or money market funds). Bond funds held $606 billion, or 15%, of mutual fund retirement assets, and money market funds accounted for $394 billion, or 10%. The remaining $709 billion, or approximately 17%, of mutual fund retirement assets were held in hybrid funds. 

Assets in lifestyle and lifecycle mutual funds totaled $511 billion at the end of 2009, up from $336 billion at year-end 2008. Lifestyle mutual funds’ assets were up 45% in 2009, rising from $176 billion to $255 billion. Assets of lifecycle funds were up 60% in 2009, increasing from $160 billion to $256 billion. The bulk (84%) of lifecycle mutual fund assets were held in retirement accounts, compared with 45% of lifestyle mutual fund assets. 

Assets in 529 college savings plans increased 24% in the first three quarters of 2009, with $111.1 billion in assets at the end of the third quarter of 2009, up from $89.4 billion at year-end 2008. As of September 30, 2009, there were 9.4 million accounts. 

The 2010 Investment Company Fact Book is here.