Magazine article American Banker

Study Sees Few Retirees with Iras in Next 40 Years

Magazine article American Banker

Study Sees Few Retirees with Iras in Next 40 Years

Article excerpt

Study Sees Few Retirees with IRAs in Next 40 Years

NEW YORK -- Few workers who retire over the next 40 years will have accumulated any individual retirement account assets to finance their retirement, according to preliminary results of a study by the Employee Benefit Research Institute.

The study, "Retirement Income and Individual Retirement Accounts," follows the accumulation of IRA assets for four sets of age groups, beginning in 1979.

Preliminary results show that, among workers who were of age 55 to 64 in 1979 (some of whom have since retired), only 3% are projected to have any IRA assets at age 67. Over the 40 years from 1979 to 2019, only 27% of workers who retire will have accumulated any IRA assets, the study projects.

In addition, the EBRI estimates that the distribution value of IRAs for retirees who did contribute to an IRA during their working years will be modest. The projected annual IRA distribution at age 67 for workers who were in the age group 55 to 64 in 1979 averages $485 for married couples, and $399 for single retirees (both figures in 1985 dollars).

For the group of age 25 to 34 in 1979, the study projects that the annual IRA distribution at retirement will be $2,963 for married couples and $2,049 for single individuals.

EBRI, a nonprofit, nonpartisan policy research organization based in Washington, D.C., said the figures "suggest that another look at IRA tax incentives may be in order if IRA assets are to become a more important component of the elderly's retirement resources."

The report argued: "IRAs were established by Congress to provide workers with a tax-advantaged retirement savings vehicle. Actual participation rates in IRAs, however, indicate that current tax incentives for workers to participate and contribute regularly are inadequate for a majority of Americans."

EBRI suggests that, among other things, Congress consider converting the deduction for IRA contributions to an income tax credit, which would induce more lower-income workers to participate in IRAs. "A tax credit of, say, 25% would offer the greatest tax incentive to people with marginal tax rates at or below 25%," the report said. "Taxpayers with higher incomes and marginal tax rates above 25% would also benefit, but less than they do with their present deduction."

The latest draft of the U.S. Senate's tax reform bill has altered the controversial linkage of IRAs and employer-sponsored 401(k) and 403(b) plans. The draft calls for a "last-dollar" offset, rather than the "first-dollar offset" passed by the House of Representatives in December.

The House passed a provision that would reduce the maximum 401(k) and 403(b) ceiling to $7,000, and limit the IRA eligibility for anyone involved in either type of plan. Each dollar an employee contributes to a 401(k) or 403(b) plan would reduce that person's IRA contribution by a like amount. Thus, anyone who contributed $2,000 to a 401(k) or 403(b) plan would not be eligible to open an IRA for that year.

The Senate would limit the total sum contributed to IRAs, 401(k)s, and 403(b) plans to $7,000 in one year. In other words, if taxpayers elected to contribute $2,000 to an IRA, they would be limited to a $5,000 contribution in their employer-sponsored plan. If they made no IRA contribution, they could contribute the full $7,000 to a 401(k) or 403(b).

More IRA statistics: Robert Ladner, president of Behavioral Science Research in Coral Gables, Fla., said preliminary results of his IRA survey indicate that banks and thrifts are in for a drop in market share this year. With 400 of the 700 respondents in the sample counted, Mr. Ladner said 67% have indicated they would open their 1985 tax year IRA at an institution other than a bank or thrift, as opposed to 47% in a similar study last year. Early results also showed that 54% said they would be willing to consolidate their IRAs in a self-directed account, as opposed to 14% last year. …

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