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

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  • IRAs were never intended to help the “average” retiree. The average retiree very seldom has saved for retirement. In fact IRAs had both deductible and non-deductible contributions from the start. The difference between the non-deductible IRA concept and Roth’s is that the non-deductible IRA had all of the same penalties for early withdrawal and taxation but they only applied to earnings. With a Roth after five years there is no tax on earnings.

    The intended use of IRAs were so that those who were employed but the employers had no retirement plan could put something away for retirement as they elected. Maximum contributions were very low in the early days of ERISA.

    As usual, the researchers at the BCCRR find a way to vilify a tax vehicle that have helped those who could save for retirement to save more. Quite frankly, I find little objectionable in that especially at the low dollar amounts that are inherent in IRAs. In other words, balderdash.

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