Does this EBRI report predict future problems for retirees?

By AskLLOYD!

American Eagle Financial Services


The nonpartisan Employee Benefit Research Institute research report published May 21, 2014 has a lot of data, some showing that balances of Roth IRAs grew at more than double the rate of traditional IRAs among a consistent set of individual retirement account owners with the median increase for these consistent owners of Roth IRAs (mid-point, or half above and half below) being 16.6 percent from 2010 to 2012. However, the most striking data may not be the data that is the most telling.

The report classifies five types of IRAs, with three of particular interest for this article:
  • Traditional-originating from contributions (TOFC),
  • Roth
  • Traditional-originating from assets rolled over from other tax-qualified plans (TOFR)
The report shows the distribution of the IRA accounts in the database as of year-end 2012 for the above classified IRA types to be:
  • TOFC: 34.8 percent
  • Roth: 22.7 percent
  • TOFR: 28.6 percent (combined traditional IRAs, 63.4 percent)
Together, this represents some 86.1 percent of classified IRAs. Moreover, the report goes on to illustrate a unique individual basis (combining the accounts owned by the same person into a single observation) of the following:
  • TOFC: 41.8 percent were individual
  • Roth: 28.1 percent were individual
  • TOFR: 34.2 percent were individual (combined total of 72.9 percent)
Now, what is striking about these numbers? IRA owners were more likely to be male. In particular, as the report points out, 57.4 percent were male for TOFR IRAs. Additionally, among all IRA owners in the database, nearly one-half (47.2 percent) were ages 45-64, with 39.8 percent for those with a Roth and 25.4 percent with a TOFR IRA. As we dig deeper into the numbers, you find that across each plan type, the average and median individual IRA balances increased with the owner’s age at least above age 25. For individuals ages 35 and older, the average and median balances for TOFR IRAs were higher than for each of the other plan types, particularly once the account owners reached age 40 and older.

And while that doesn't seem particularly surprising, here’s what is surprising — and concerning. The report states the likelihood of contribution to an IRA did not significantly differ by gender within the database, as both Roth and traditional IRA owned by either males or females had similar probabilities of receiving contributions. But here’s the thing: Males had higher individual average and median balances than females; $139,467 and $36,949 for males respectively, versus $81,700 and $25,969 for females.

Why is this striking? A USA Today article states that during retirement, women earn less than men in benefits and retirement savings payments. The average woman over the age of 65 earns only $16,000, almost $11,000 less than a man in the same age bracket, according to the article. Factors affecting women accumulating assets for retirement:
  • Women as stay-at-home caregivers
  • Benefits depend on marital status
  • Women live longer
There is a lot of interesting data in the Employee Benefit Research Institute research report, yet what may be the most interesting data is that data about IRA ownership, contribution and account balances. Talk to your clients today to make sure an income gap will not create a retirement crisis for the widow in the home, because it was either overlooked or not planned for when it mattered the most.