Individual Retirement Accounts can be an important part of your retirement plan, especially if you don’t have an employer-sponsored 401(k) or 403(b).
But the fifth annual TIAA IRA survey indicates that a surprising number of people don’t understand them, especially millennials. And of those who do understand them, many say they simply cannot afford to save another dime.
It all translates into the need for more and better financial education, according to the folks at TIAA.
Dan Keady, a senior director at TIAA, says one thing that surprised him was the response to the question of what people would do if they had an additional $5,000.
“Many people said they were looking to pay down debt, and some people said they would put it into emergency savings,” he says. “I was surprised that we were down to 6 percent who could contribute it to an IRA.”
Some interesting statistics:
25 percent said they do not know enough about IRAs.
46 percent said they can’t save any more than they already do.
Thirty-five percent of millennial respondents who aren’t contributing to an IRA said they don’t know enough about them to consider using one.
Gen X respondents, meanwhile, were more likely to say they didn’t have enough money to save more than they already do. That’s not surprising, says TIAA, because there are a many competing priorities for this group (ages 36 to 51).
“We saw a situation where a lot of folks said they don’t know enough about IRAs,” Keady says. “It’s still a big percentage. Even those people who understood an IRA, 46 percent said they don’t have enough money to save more than they already do. Some folks may be tapped out. Even those that have enough money, a quarter are saying they don’t know enough about IRAs.”
One thing people should consider when they are choosing an IRA: Whether the IRA company also provides financial advice, he says. Only 36 percent of the people surveyed said access to financial advice is important when they evaluate possible IRAs.
“When you go through an (financial) advice session, it makes it easier to take the theory and say how do I apply it to my life and my family,” Keady says. “When they chose a provider, people need to see if they get that advice component.”