The percentage of U.S. workers contributing to individual retirement accounts and 401(k)-type plans is increasing, and the average amount contributed also is going up.

But individual account earnings were actually lower in 2004 than in 1996, and workers now face the challenge of using individual account plans to compensate for the decline of the defined benefit pension system, according to Craig Copeland, a researcher at the Employee Benefit Research Institute, Washington.

“Americans have amassed a substantial amount of wealth in these plans,” Copeland writes in a paper based largely on analysis of data from the U.S. Labor Department and government income data. “However, a majority of Americans still do not have a retirement plan.”

Meanwhile, “the management of assets by those with retirement savings is a new challenge,” Copeland writes.

The number of U.S. workers participating in defined contribution retirement plans rose to more than 52 million in 2004, up from 44 million in 1996, according to EBRI.

Defined contribution plan assets increased to $2.6 trillion, from $1.6 trillion.

Over the same period, the percentage of U.S. adults ages 18 to 64 with IRAs increased to more than 21%, from 17%.

Perhaps because of predictions about the collapse of the Social Security system, young workers are substantially more likely to contribute to IRAs.

The percentage of workers ages 25 to 34 who made a tax-deductible contribution to an IRA increased to 4.2% in 2004, from just 3.1% in 2006, Copeland reports.

The average inflation-adjusted earnings on defined contribution plan assets climbed to $5,711 in 2006, from $4,985 in 2004.

But average earnings on IRAs actually fell to $3,006, from $3,402.

For taxpayers in families with annual incomes over $75,000, inflation-adjusted defined contribution plan earnings rose modestly, to $6,962, from $6,551, but average inflation-adjusted IRA earnings fell to $3,430, from $3,814.

Similarly, workers with college degrees reported lower IRA earnings in 2004 than they had been reporting 8 years earlier.

Only 11% of the workers with family incomes over $75,000 and only 15% of the workers with graduate degrees made the maximum 401(k) contribution in 2004.

Meanwhile, the fact that large numbers of workers will be entering retirement with substantial nest eggs raises more questions, Copeland writes.

“The new challenge for retirees who own these accounts will be to maintain and draw down their retirement assets in a manner that pays for an acceptable standard of living and lasts throughout the length of their retirement,” Copeland writes. “Any retirement asset drawdown decision that underestimates the retiree’s remaining years of life could result in the individual outliving his or her retirement assets.”

Retirees will need financial vehicles that will reduce the risk of outliving their assets, Copeland writes.

Otherwise, Copeland writes, retirees may have to cope with lack of income by lowering their standard of living.