A new study by Fidelity Investments and its clearing arm, National Financial, reveals that despite the fact that seven out of 10 people fear they won’t have enough money to live on in retirement, only 46% of them are using an IRA for retirement savings.
What’s more, despite the fact that the Pension Protection Act provides permanency to IRA contribution limits, only 7% of non-IRA holders plan to open an IRA before the April 16 tax deadline, the study found. Even current IRA holders aren’t taking full advantage of their existing accounts, the study says, with just 37% contributing money to these plans in 2006, and only 16% saying they are “extremely/very likely” to contribute before the April 16 tax filing deadline.
Lizanne Capper Campbell, senior VP at National Financial, said in a statement announcing the study’s findings that “advisors can play a crucial role in helping Americans understand the benefits of an IRA and how these vehicles can help address their retirement funding concerns.”
The study–which polled 1,000 Americans (500 IRA owners and 500 non-IRA owners)–also reveals that misperceptions about IRAs are keeping people from owning an IRA. For instance, the study says that nearly half (46%) of non-IRA owners believe that they must contribute the maximum annual dollar amount when opening an IRA, when, in reality, an IRA “generally can be opened with a relatively small monthly contribution,” the study says. In addition, 59% did not know they could contribute to a rollover IRA to consolidate their investments.
The study also suggests that those polled lack awareness of an IRA’s tax-advantage options. When presented with a hypothetical windfall of $5,000, the study found that IRA owners would invest an average of $2,200 for the long term, while non-owners would invest only $1,250. “Of those who would use the money for long-term savings, one out of two (49%) of non-IRA owners (and 45% of owners) said they would elect to put the money into a banking account (such as a CD or savings account), instead of an IRA or other retirement savings vehicle,” the study says.