Individual retirement accounts (IRAs) represent the largest single repository of U.S. retirement plan assets, holding more than one-quarter of all retirement plan assets in the nation. The Employee Benefit Research Institute (EBRI) developed the EBRI IRA Database to analyze the status of and individual behavior in IRAs.
This is the third longitudinal study from the IRA database, which supplements the annual cross-sectional analyses. This Issue Brief, using the EBRI IRA Database, specifically examines the trends in account balances, contributions, withdrawals, and asset allocation in IRAs from 2010-2014. Results from both the annual cross-sectional sample and a consistent sample of IRA owners who have been in the database in each year from 2010-2014 are presented. This allows for the investigation of the behavior in IRAs that are continuously maintained, instead of the results being affected by new and former IRA owners.
- Account balances: Significantly higher growth in account balances was found in the consistent sample of IRA owners compared with the annual cross-sectional sample. While the cross-sectional overall average account balance increased 38.9 percent from 2010 to 2014, the increase for those IRA owners who continuously owned IRAs from 2010-2014 was 45.8 percent.
- For the consistent account owners, the distribution of the actual changes in the account balances can be measured. The lowest 25 percent (regardless of age) had increases less than 2.8 percent since 2010. On the other hand, the highest 25 percent of balance changes exceeded 78.0 percent. Consistent Roth-IRA owners experienced a much higher distribution of increases, with the lowest 25 percent of the balance changes for IRAs topping out at 33.4 percent, and the highest 25 percent exceeding 100.0 percent.
- For consistent account owners, the overall average balance increased each year—from $92,087 in 2010 to $93,036 in 2011, to $104,970 in 2012, to $122,272 in 2013, and to $134,244 in 2014. Average balances for each gender also increased each year. The median values followed a continual upward trend across all IRA owners, except for those ages 70 or older (where annual withdrawals are required) and for owners of Traditional IRAs originating from rollovers.
- Contributions: There are considerable differences by IRA type whether IRA owners who have maintained their IRA for five years (consistent account owners) are likely to contribute, as well as the number of years they contribute. Among Traditional IRA owners, 87.6 percent did not contribute to the IRA in any year, while 2.1 percent contributed in all five years. In contrast, 61.5 percent of Roth IRA owners did not contribute in any year and 10.4 percent contributed in all five years. Roth IRA owners ages 25-29 were the most likely to contribute in at least one year and in all five years, at 61.3 percent and 16.0 percent, respectively.
- While the percentage of individuals contributing remained relatively consistent across the five years, the percentage of contributors who contributed the maximum rose from 43.5 percent in 2010 to 53.5 percent in 2012. Increases during that time occurred for each IRA type, with owners of Traditional IRAs having higher likelihoods of contributing the maximum in each year. However, in 2013, with the increase in the maximum allowable contribution, the percentage contributing the maximum overall fell from 53.5 percent in 2012 to 43.3 percent in 2013. Similar percentage-point drops occurred for both Traditional and Roth IRAs. In 2014, the likelihood of contributing the maximum among those who contributed increased again, reaching 55.4 percent.
- The overall average contribution increased each year through 2013 before a slight decline in 2014. In 2010, the average contribution was $3,335, increasing to $3,723 in 2011, to $3,904 in 2012, and to $4,145 in 2013, before the decline to $4,119 in 2014. This increase and then decrease in 2014 in the average contribution occurred for each known age and gender of contributing owners of IRAs, except for those IRA owners ages 60 or older.
- Withdrawals: Among consistent account owners, the percentage of individuals taking a withdrawal from a Traditional or Roth IRA rose from 12.9 percent in 2010, to 15.4 percent in 2011, to 16.7 percent in 2012, to 18.5 percent in 2013, and to 19.6 percent in 2014. This pattern is the result of the increasing percentage of individuals in this sample surpassing the required minimum distribution (RMD) age each year due to the same individuals being in the sample from year to year. Moreover, the likelihood of taking a withdrawal increased with age.
- To analyze IRA withdrawal trends and how sustainable they are to last throughout retirement, the most salient age is when the owners reach the RMD age (generally age 70-1/2). Analysis of Traditional IRAs in the EBRI IRA database for this age group from 2010 to 2014 shows a range of average annual withdrawal rates from about 4 percent at the 10th percentile to 13 percent at the 90th percentile.
- Asset allocation: For the annual cross-sectional snapshot, the percentage allocated to equities decreased from 45.7 percent in 2010 to 44.4 percent in 2011 before a sharp increase in 2012 to 52.1 percent, to 54.7 percent in 2013, and to 55.7 percent in 2014. The amount allocated to balanced funds was constant from 2010 to 2011 before a slight decline in 2012 and an even smaller uptick in 2013 and in 2014, while the percentage in money increased in 2011 and fell through 2014. o Consistent account owners moved toward higher equity holdings from 2010-2014. The equity allocations in 2014 were overall higher than the values in 2010 across all groups studied.
- The IRA database shows that 43.8 percent of the IRA owners had extreme holdings in equities (0 percent or 100 percent allocation) in both years. For those who were not at an extreme value in either year, the range of their asset allocation changes to equities ranged from a 2.0 percentage point decline at the 25th percentile to a 14.3 percentage point increase at the 75th percentile.