Individual Retirement Accounts (IRAs) are the most common retirement savings vehicle and represent the largest pool of assets in the retirement market at $7.6 trillion1. They provide tax advantaged savings opportunities for individuals not covered by an employer sponsored plan as well as a supplement for those seeking to save more for retirement. In addition, people transitioning out of the workforce into retirement leverage IRAs as their main investment vehicle.
Consider these important IRA facts1 about the profiles and behavior patterns of IRA owners to help you gain insight into your clients’ perspectives toward IRAs.
- Contributions fuel consistency. Of the 8.6% of Traditional IRA owners who made annual contributions, 65% contributed in the prior year.
- IRA ownership cuts across income levels. Over 60% of IRA owners have a household income of less than $100,000.
Insight: Nurture your relationship with IRA owners across all income levels. Getting your clients to make their first annual IRA contribution can set them on a path of consistently and fully funding their households’ IRA each year. Look through your entire book of business for IRA opportunities.
- IRA households had an average IRA account balance of $65,000 for accounts held less than 10 years and $141,000 for accounts held under 20 years.
- 58% of Traditional IRA owners consulted a financial professional prior to taking a distribution.
Insight: As IRA balances grow in significance, the less likely an IRA owner is to make a hasty distribution decision. While the primary focus is on getting clients to save more, it’s just as important to help clients be thoughtful about their drawdown decisions. Identifying the account type, Traditional and/or Roth as well as the investment(s) are important factors to consider.
- Most IRA owners consult a financial professional for retirement strategies and IRA information. More than 70% of Traditional IRA owners sought the services of a financial professional when developing a retirement strategy. Expenses, insurance policies, sources of income and timing of Social Security distributions were topics of discussion.
- 64% of Traditional IRA owners worked with a financial professional before rolling their retirement savings from a former employer’s plan into an IRA. Other sources consulted were spouse/partner, employer resources, online material from financial services firms and IRS publications.
Insight: Your expertise matters. Demonstrate to your clients that you can offer support by having a complete view of their financial picture. As a financial professional, you can assist your clients with insurance, retirement goals, investable assets, distribution options and managing their debt.
- Traditional IRA owners favor Equities.
Insight: Equity holdings represent 64% of Traditional IRA account assets, followed by 15% in bonds. Historically, equities have provided growth over the long-term. Review your IRA clients’ goals, time horizon and risk tolerance to help determine the level of equity exposure that is appropriate for them.
Use these facts and insights into your client base to re-evaluate how you approach IRA clients and prospects.
1 Investment Company Institute, Ten Important Facts About IRAs, July 2015.↩
OppenheimerFunds is not undertaking to provide investment advice or to provide advice in a fiduciary capacity.
This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.