LIMRA’s report found only 28% contribute to any kind of IRA, such as a traditional IRA—which allows workers to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred—or a Roth, or SEP/SIMPLE. The commonest reason given for not contributing was affordability (42%). Nearly a quarter said they were saving in another retirement plan, such as a workplace-sponsored defined contribution (DC) plan.
One in seven said they were uncertain how to invest assets or hadn’t gotten around to it. One-third of workers believe they don’t understand enough about IRAs to contribute to one.
Surprisingly, says Cecilia Shiner, assistant research director at LIMRA, 85% of workers had never been approached by a financial services company or adviser about setting up an IRA—an excellent way to save for retirement for those without access to a DC plan. “Our research indicates that there is a significant market opportunity for financial advisers and companies who help these consumers better understand and invest in an IRA,” Shiner notes.
More than a third of Generation X workers are contributing to an IRA (34%) while only a quarter of Millennials and Boomers currently are. According to the study, 40% of workers would be more likely to contribute to an IRA if a payroll deduction option were available through their employer—and nearly half of Millennials said payroll deductions would spur them to contribute.
“Previous research has shown that employers are concerned about their employees’ retirement prospects,” Shiner says. “Offering an auto-IRA through the workplace could encourage workers to systematically save and improve their financial security in retirement.”
LIMRA Secure Retirement Institute found that workers with an IRA are likelier to feel confident that they will be able to live their preferred retirement lifestyle (55%), compared with just 24% of those who don’t own an IRA.
“Understanding IRAs: Worker Behaviors and Attitudes” can be accessed through LIMRA’s site.