IRAs Don’t Help Average Retirees

The Employer Retirement Income Security Act (ERISA) of 1974 introduced the American public to the Individual Retirement Account  with a lofty goal: helping retirees who didn’t have pensions or other  employer-sponsored programs to save for retirement.

But according to a recent analysis from the team at the Center for Retirement Research at Boston College, the IRA has fallen short as a retirement equalizer, instead generally helping those with less precarious financial situations.

“It became clear after ERISA’s enactment that IRAs had quickly become a popular tax shelter for high-end taxpayers,” the center notes in a Thursday blog post. And despite attempts to level the playing field with the introduction of various restrictions and the income-limited Roth IRA, the accounts remain the domain of higher-earning retirees.


“The researchers found that active contributors today to IRAs – both traditional IRAs and Roths – have household earnings that average $110,000,” the center notes, citing recent work from Boston College researchers Anqi Chen and Alicia H. Munnell. “They also tend to be white (86 percent of contributors), have a college education (61 percent), and participate in their employer’s 401(k) (53 percent).”

The BC team further divides IRA users into three largely affluent categories: “super savers,” or households with multiple incomes that contribute to 401(k) plans on top of IRA savings; “frugal breadwinners,” or single-earner households who also largely take advantage of employer-sponsored accounts; and “successful, self-employed entrepreneurs” with average incomes of more than $140,000 per year.

“The people saving new money in their IRAs — a minority of all IRA owners — are not primarily the people these accounts were designed to serve,” the center concludes.

Read the quick blog post summary at BC’s Squared Away blog, or take a full dive into the research here.

Written by Alex Spanko