Retirement saving has always been an important part of
ensuring long-term financial security. Yet with the ups and downs in the
economy over the past decade, many Americans have found themselves getting
derailed from their plans to save ambitiously for retirement. Fortunately, as
economic conditions have improved in recent years, more American workers have
been able to put more of their money toward long-term financial goals, and one
group in particular has done a particularly good job of staying on course.
Below, we'll take a look at the people who are doing the best at seeing their
retirement savings grow and show you how you can join them.
The state of the IRA
Earlier this year, the Employee Benefit Research Institute did a comprehensive
examination of account balances in Individual Retirement Accounts over the past
several years. Collecting data on nearly 26 million accounts owned by more than
20 million individuals, the EBRI looked at the progress that retirement savers
made between 2010 and 2013, collecting information on account balances,
participation rates, contribution amounts, and other key factors affecting
retirement saving.
Overall, as you'd expect, IRAs fared quite well during the
three-year period, following the strong performance in the U.S. stock market.
The EBRI found that average account balances rose from about $92,000 in 2010 to
nearly $120,000 in 2013, a gain of more than 30%. The study also looked at
median balances, recognizing the fact that accounts that wealthier individuals
own have a disproportionate impact on average figures. Median numbers were
lower but reflected similar gains of about 27% between 2010 and 2013.
Yet one of the more surprising results from the study came
from looking at who did the best job at making contributions to retirement
accounts. Even though you'd think that older workers would be more honed in on
making sure that their retirement planning is in order, the findings showed
that, at least in some key areas, younger Americans are doing a great job in
planning for their future.
Young workers
are using their Roth IRA opportunity
In particular, the EBRI found that Roth IRA owners between 25 and 29 years old
were the most likely to contribute to their retirement accounts, with almost
half making contributions to their Roth accounts during 2013. Participation
over longer periods of time was even more encouraging, as nearly 60% made a
Roth IRA contribution in at least one year between 2010 and 2013, and more than
one in five contributed to their Roth IRAs in all four of those years. By
contrast, those participation rates dropped as ages increased, and the
corresponding figures for traditional IRAs failed to reflect a major uptick
that would have indicated a shift away from Roths toward tax-deductible
traditional IRA contributions.
In addition, Roth IRA savers aren't letting any concerns
about saving enough for retirement stop them from making contributions. Among
those who contributed regularly to an IRA in all four years from 2010 to 2013,
about one in three traditional IRA owners maxed out their IRA contributions,
compared to just one in four Roth IRA owners. Still, younger workers did a good
job of putting money toward their retirement, with average contributions for
those in their 20s generally falling in a range between $3,000 and $3,500.
Finally, it's encouraging to see more young workers take
advantage of Roth IRAs. It's tempting to grab any chance at tax savings right
now, and using a Roth requires the foresight to give up that immediate
gratification in exchange for what in the long run can be a much larger
tax-saving opportunity. By recognizing that they're in a particularly good
position to benefit from the tax-free nature of the Roth IRA, those in their
20s are generally making smart moves by emphasizing the Roth IRA in their
retirement planning.
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