Everywhere I go, I hear stories of people in dire financial straits, considering actions they never would have taken during less desperate times. Things like raiding your IRA -- once seen as a last-gasp measure -- now appear to some like reasonable steps to help make ends meet.

But the news isn't all bad. According to a report last month from the Investment Company Institute on the role that IRAs play in people's financial planning, many investors have a strong investing plan to follow to ride out the recession -- and should be able to avoid ruining their future retirement prospects by dipping into IRAs.

Not pulling out
The best news from the report, which covered the 2007 tax year, was that the vast majority of people didn't tap their IRAs for purposes other than retirement. Among the households that took money out of their IRAs, more than 80% were made by people who were already retired. Just 5% of those 59 and younger -- who would generally have to pay a 10% penalty to get at their IRA money -- made IRA withdrawals.

Moreover, it's apparent that most retirees see IRA money as a backup for their other savings. Over 60% plan not to take money out of their IRAs until age 70 1/2, when the tax laws force them to start making withdrawals.

Making the most of your money
This combination of results bodes well for retirees, even those hit hard by the market's fall since 2007. Even for those near retirement or just having retired, much of their IRA money still has a long time horizon, meaning that they'll have a greater chance of riding out the worst of the market's downturns.

A longer time horizon also opens up a possible strategy shift for retired investors. Although money you'll need in the next few years is best left in safe investments like insured bank CDs or high-quality bonds, part of a retiree's money could potentially earn much better returns in blue-chip stocks -- especially given the declines we've seen lately.

To see how that could help, turn back the clock a generation to the bear market of 1973 and 1974. Many are now drawing comparisons between then and now, especially since it was the last time stocks fell as dramatically as they have in the past 15 months. Those who bought well-known stock names even after the market's recovery had begun saw some amazing returns in the long run, even though the economy still struggled into the early 1980s:


Total Return, 1973-75

Total Return, 1975-85

Total Return, 1975-95

ExxonMobil (NYSE:XOM)




Procter & Gamble (NYSE:PG)




Johnson & Johnson (NYSE:JNJ)




General Electric (NYSE:GE)








DuPont (NYSE:DD)




McDonald's (NYSE:MCD)




Source: Yahoo! Finance. Returns as of Feb. 26 of each year, except Feb. 24, 1995.

You wouldn't have to shift anywhere close to your entire portfolio into stocks in order to benefit from a recovery -- but having the extra time to wait for one is critical.

Room for improvement
Nevertheless, the study also cites areas where people could improve. Fully 30% of households have neither an employer-sponsored retirement plan or an IRA account for their retirement savings. Only 40% have an IRA of any type, despite the fact that anyone who works can contribute to some form of IRA.

Moreover, once investors have an IRA, they don't necessarily make the most of it. Only 14% of households made new contributions to their IRAs in tax-year 2007, and few who qualify for special catch-up contributions took advantage of them.

Nevertheless, those numbers should improve over time. Already, the recession has led many to cut back on debt and improve their savings habits, and inevitably IRAs and other retirement accounts will see some of that money funnel in. Far more important is for investors not to panic and take IRA withdrawals for the wrong reasons -- and if this report is any guide, most people at least understand that pulling out of an IRA is something to avoid if at all possible.

For more on making the most of your IRA:

Turn to our Rule Your Retirement newsletter to get the inside scoop on using IRAs, 401(k) accounts, and other resources to save as much as you can for retirement. You can see everything we have to offer free with a 30-day trial.

Fool contributor Dan Caplinger keeps diligently making IRA contributions. He owns shares of General Electric. Johnson & Johnson is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is never a bad move.