Good retirement signs for those committed to IRAs
For all the consternation about whether Americans are preparing enough for their retirement, it’s nice to get some good news on that front.
Studies from the Employee Benefit Research Institute show that when people are committed, the average balance has increased significantly between 2012 and 2013, the latest year numbers are available.
In addition, owners of IRAs increased their allocations to stock equities in 2013.
Both moves will help Baby Boomers and other Americans pursuing those strategies to be a much better position than others of their generation.
What the numbers show is the average account balance grew by 10.9 percent between 2007 and 2012.
In looking at sampling of 4.2 million accounts of people who consistently continued their accounts, that’s an average of $148,399 at the end of 2013, up from $79,882 in 2007.
The study found that two in five participants had more than $100,000 in their accounts with their current employers and about 25 percent had more than $200,000. Americans love their 401(k) plans.
When the group looked at the broader at its databased of 26.4 million accounts that includes people who hadn’t been consistent, the average balance between 2007 and 2013 rose from $65,454 to $72,383. Overall, only one in five savers had accounts of $100,000 or more and one in 10 had savings of $200,000 or more in that scenario.
A lot of that average is buoyed by the best savers.
When looking at the numbers on a median account balance, those who participated consistently had an average growth rate of 15.8 percent and balance of $75,359 by the end of 2013. That’s four times the median account balance of $18,433 for the entire database.
What the study shows is that two thirds of 401(k) participants who are consistent in saving focus their assets in equities. That includes equity funds, non-target date balanced funds or company stocks. That percentage holds up to the whole group.
“This shows the value of continuing to participate in 401(k) plans,” says Jack VanDerhei, co-author of the study. “If they are participating in a 401(k) plan and continue to do so, my simulation models show they have a much better chance of having sufficient retirement income.”
On the IRA front, the non-partisan research group says gains are tied to that nearly half of those accounts have “extreme” value and buoyed by the jump in the stock market.
It tracked 26 million IRA accounts between 2010 and 2013, the latest year available. More than 50 percent of IRA assets were allocated to equities.
Roth IRAs had the highest allocation to stocks compared to traditional IRAs, says study author Craig Copland.
What the numbers showed is older participants with traditional IRAS had lower allocations with equities.
Overall, 54.7 percent of the assets were in equities, 10.1 percent were in balanced funds, 15.3 percent were in bonds, 11.6 percent were in money and 8.4 percent were in other assets. The total equity exposure was 60.7 percent.
Copeland say the allocations of men and women were about equal allocations for bonds, equities and money. Differences showed up with men more likely to be more diversified while women had a bigger percentage in balanced funds.
As for age, the percentage allocated to bonds rose with it while the amount for equities decreased. The amount allocated for balanced funds decreased with age.
In 2013, the percentage increased to equities rose 5 percentage points to 51 percent. The percentage allocated to bonds dropped 4 percentage points to 12.4 percent in 2013. The amount allocated to money dropped by 1.6 percentage points and the amount for balanced funds remained the same.
Overall, 22.8 percent of IRAs have less than10 percent in equities and 34.0 percent have more than 90 percent in equities, Copeland says.
Furthermore, almost 1 in 5 IRAs (18.9 percent) had more than 90
percent of their assets in bonds and money.
IRAs make up about 25 percent of retirement savings.