IRA Bundles Going Up in Smoke

Our friends at the Investment Company Institute (ICI), a trade organization for the mutual fund industry, have just released findings from a survey on retirement. In it is cause for both celebration and concern.

We can celebrate the fact that 70% of American households had some savings in work-sponsored retirement plans or IRAs. We can worry about the other 30% of households, though. And we should also temper our celebration because just having an account or two isn't enough for a non-gruesome retirement. The accounts need to have sufficient funds in them, and they need to be growing at a good clip, too.

Here's another little cause for concern: In 2008, 32% of households had a traditional IRA, twice as many as the 16% that had Roth IRAs. For most of us with many years left until retirement, Roth IRAs are actually much more compelling, because you can withdraw their assets tax-free in retirement.

And finally, here's the most alarming tidbit I saw: Although most households were eligible to contribute to IRAs, only 14% did so in tax year 2007. Yikes! Think about that. If you're 20 years from retirement and you miss out on one year's $5,000 contribution, you're giving up nearly $34,000 at retirement (assuming it grows at 10% annually).

What to do
These days, fewer and fewer of us have pensions. It's up to us to fund our 401(k)s and IRAs generously and invest intelligently. 401(k)s are great because you can invest $16,500 in them per year -- more if you're 50 or older. You're usually limited to investing in a small range of funds, though. But when you change jobs, you can roll that money into an IRA (and you can probably invest in an IRA separately, also), where you can invest in just about any stock or fund.

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