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Only 8% of Americans Are Making This Smart Retirement Move

By Matthew Frankel, CFP® - Apr 28, 2018 at 6:11AM

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It's shocking how few Americans take advantage of this.

The IRS recently released Individual Retirement Arrangement (IRA) data for the 2015 tax year, and there's one shocking statistic that stands out:

Only 8% of eligible taxpayers chose to contribute to an IRA of any kind.

This includes traditional and Roth IRAs, as well as SEP-IRAs and SIMPLE IRAs. And keep in mind that this is the percentage among taxpayers who were eligible to make IRA contributions. If you consider people who weren't eligible to make IRA contributions -- this generally means those without any earned income -- the figure drops to an alarming 6%.

Here's a rundown of the data, the excuses people commonly give for not contributing, and if you're part of the 92%, why you should consider an IRA contribution of your own in 2018.

Jar of coins labeled retirement.

Image source: Getty Images.

Here's how many Americans contribute to IRAs

Just over 13,000,000 taxpayers contributed to IRAs in 2015, the most recent year for which complete data is available.

  • 4,305,106 contributed to traditional IRAs (33%)
  • 1,093,512 contributed to SEP-IRAs (8%)
  • 1,865,777 contributed to SIMPLE IRAs (14%)
  • 6,363,335 contributed to Roth IRAs (49%)

Now, 13 million people may sound like a lot, until you consider that 157.4 million taxpayers were eligible to make IRA contributions in the 2015 tax year. This translates to only 8.3% of eligible Americans choosing to contribute to IRAs.

Older savers are most likely to contribute

Not surprisingly, older taxpayers are most likely to take advantage of IRA savings. Not only do people in the 50-plus age group tend to be in their top-earning years, but they are also very close to retirement and are eager to put away as much money as possible.

Age Group

Percentage of Eligible Taxpayers Who Contributed









Data sources: IRS and author's own calculations.

Some people have good excuses

To be fair, not all of the 92% of eligible Americans who don't contribute to IRAs are necessarily making a mistake. There are certainly some solid reasons for not contributing to an IRA. Just to name a few:

  • Some people have sufficient retirement savings, so they don't choose to contribute more. This certainly makes sense. If I was 65 years old, planning to retire in a couple years, and had several million dollars in retirement savings, I may not feel the need to contribute any more money to my IRA.
  • Many people are satisfied with their employer's retirement plan. If you have a 401(k) or similar retirement plan at work with a solid matching contribution program and a selection of good investment options, there's nothing wrong with choosing to leave your retirement savings on autopilot. However, in these situations, contributing just enough to get your employer's matching contributions isn't likely to be enough.
  • Some eligible taxpayers aren't able to take advantage of the tax benefits of IRA investing. For example, anyone with earned income can contribute to a traditional IRA, but the ability to take a deduction for those contributions depends on your income.

Some excuses are bad

While some excuses for not contributing to an IRA are legitimate, many aren't. Here are just a few of the worst excuses, and why you shouldn't let them stop you.

  • "I can't afford to save money right now" -- Don't underestimate the long-term power of setting aside seemingly small amounts of money. If you set aside just $25 per paycheck (biweekly) starting at age 25, and your money grows at a 7% annual rate, you'll be sitting on a $130,000 nest egg by the time you retire. $50 per paycheck could get you $260,000. Plus, there's a tax credit -- known as the Saver's Credit -- that can literally give you free money in exchange for saving for your retirement.
  • "I'm too young to worry about retirement" -- This is perhaps the worst possible excuse for not contributing to an IRA, but the data shows that young people are even less likely than average to contribute. In fact, less than 3% of eligible taxpayers age 20-24 contributed to an IRA, and just 5.6% of the 25-30 age group chose to contribute. Here's why this group should be eager to contribute. Every $1,000 you contribute to an IRA at age 40 can be reasonably expected to grow to about $5,400 by age 65, based on a historically conservative 7% annualized rate of return. On the other hand, every $1,000 you contribute at age 25 can be expected to grow to nearly $15,000. In other words, starting early gives your money more time to grow.
  • "Social Security will be enough to live on" -- Social Security retirement benefits are only intended to replace about 40% of the average worker's income. The average monthly retirement benefit is currently $1,410. Unless you could comfortably live on about 40% of your paycheck, Social Security will not be enough all by itself.

The tax benefits of IRA saving

Obviously, an IRA can help you build a retirement nest egg. However, many Americans don't fully grasp how powerful the tax benefits can be.

For starters, you can get a current-year tax deduction for contributions to traditional IRAs, as well as SEP and SIMPLE IRAs. Here's the average IRA deduction by account type in 2015:

IRA Type

Number of Deductions

Average Deduction










Data sources: IRS and author's own calculations.

Here's what this could mean to you. The average traditional IRA deduction could have saved you more than $1,100 if you were in the 25% marginal tax bracket. Self-employed individuals who took advantage of the higher-limit SEP and SIMPLE IRA account types saved several times that amount, on average.

Roth IRA contributors don't get an immediate tax break, but qualified withdrawals will be 100% tax-free, no matter how large the account has grown.

Big tax savings plus the ability to achieve financial security in retirement make IRA investing a no-brainer. If you haven't contributed to an IRA yet, 2018 might be a smart time to join the 8%.

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