Poll Finds IRA Funding Drop Off

A Putnam news release said more than half of those who did not fund their IRA for 2009 said they either lacked the cash to invest or preferred to keep the cash available for other reasons, and another quarter were worried about market risk. When asked what types of investments they felt most comfortable including in their IRA, 50% cited an investment designed to provide positive, steady returns.

The lower IRA savings come even as 58% of respondents report they are not saving more overall this year than last and 62% think their savings are unlikely to provide them with a sizeable retirement nest egg. Some also have unrealistic expectations about what their IRAs can generate in retirement income. For example, nearly a third (28%) of those with IRA assets of $100,000 or more expect that their IRAs would generate $100,000 or more in annual retirement income.

Nearly a third of respondents (29%) who rated themselves as “expert” or “educated” about IRAs did not realize they would be required to pay ordinary income tax on each dollar converted to a Roth IRA. An equal number (33%) did not realize that retirement withdrawals of principal and income are free of income tax for Roth IRAs. A fifth (21%) admit that they are unsure of how a Roth IRA differs from other IRAs.

Forty-one percent think they will have more money in the long run if they pay taxes later with a traditional IRA rather than converting to a Roth IRA and paying taxes now (26%). Generally, Putnam reported, 14% of respondents are considering converting some or all of their traditional IRA assets to a Roth IRA either this year or next, with a majority (56%) saying they definitely will not convert.

Two-thirds of respondents (67%) said they are not confident that the taxes they would pay now because of a Roth IRA conversion will produce better results in the future. Nearly as many (61%) say they do not want to pay the taxes required by a Roth conversion because of previous investment losses, and 56% said they cannot afford the costs of a Roth IRA conversion.

“The economic turmoil of recent years has made clear to Americans the uncertainty of their prospects for a secure retirement. They understand the need to save more, but are finding it difficult to do so, leaving them with a significant retirement income gap,” said Jeffrey R. Carney, Head of Retirement and Global Products at Putnam Investments, in the announcement.

The survey findings are based on a representative nationwide sample of 1,001 U.S. adults, age 22 and older, polled online April 2–7, 2010, by Insight Express.