When 21 million people lost their jobs in 2020, it seemed inevitable that at some point families would be tapping tax-advantaged assets like 401(k)s and IRAs to keep a roof over their heads and food on their tables.
But that’s not what happened at all, and IRA accounts were flourishing by mid-2021, said a recent survey by the Investment Company Institute (ICI) in Washington, D.C.
“The thing that’s really comforting, whether it’s the 401(k) or the IRA, is the stewardship of assets,” said Sarah Holden, ICI’s senior director of retirement and investor research and author of “The Role of IRAs in US Households’ Saving for Retirement, 2021.” “With 401(k)s, people kept the contributions and asset allocations, and with the IRAs people left them alone. People really tried to preserve their nest egg.”
In fact, when the government gave IRA holders with required minimum distributions a break by waiving the requirement for 2020 after account values had dropped, many American savers took advantage and declined a distribution, the survey said.
“It shows us that people start tapping the IRA only when the government says they have to,” Holden said. “And even when this nest egg is cracked open, they’re still handling those funds in a very responsible way.”
The survey was conducted in June of last year with a sample of 3,257 traditional IRA or Roth IRA owners in the U.S.
Among the key findings:
- Most households—54%—consult a financial advisor to figure out the amount of withdrawals.
- In mid-2021, 37% of households owned IRA assets, with traditional IRAs being the most popular form fueled by rollovers from employer-sponsored retirement plans.
- The three most common reasons people gave for rolling over were that they did not want to leave assets with their former employer (cited by 25% of those surveyed), they wanted to consolidate assets (cited by 22%) and they wanted more investment options (cited by 13%).
- Seventy percent of traditional IRA owners have a planned retirement strategy that includes several steps: the review of asset allocations (included by 72% of those surveyed), a plan for retirement income (cited by 69%), an expense plan (named by 66%), the setting aside of emergency funds (cited by 61%) and a date for taking Social Security benefits (cited by 57% of respondents).
- When people do make withdrawals, the primary reason is for home purchases, repairs or remodeling (cited by 32% of the respondents), emergencies (named by 15%) or healthcare expenses (cited by 14%).
Even if people weren’t touching their tax-advantaged IRAs in 2020, only 37% of account owners made a contribution that tax year. And looking at the United States as a whole, just 13% of households that were eligible to contribute to an IRA did so, the survey found, though that was up from 12% in 2019.
Account owners who made withdrawals opted for modest amounts. On average, 15% of households that made withdrawals from their traditional IRAs in tax year 2020 took less than $2,500, and another 12% took between $2,500 and $4,999, the survey said, adding that a median of 6% of the account balance was withdrawn.
And the younger the IRA owner, the more restrained the withdrawals. For owners younger than 59, only 7% took withdrawals at all. What's equally remarkable is that only 23% of households headed by someone 59 to 69 took a withdrawal. This is the demographic group that, according to Federal Reserve data and other reports, among which early retirements have accelerated.