Sunday, August 05, 2012

Sums of Substance

An acquaintance of mine recently described to me the challenges of trying to help a family member rebalance their retirement portfolio, which at the moment was split between a 401(k), 403(b), and an IRA.

Curious, I asked him how the funds in the IRA were invested. He laughed and said, “Which one?”

The data suggest that my friend’s family member isn’t alone in that regard; the average IRA balance is about a third higher and the median (mid-point) balance almost 42 percent larger when multiple individual retirement accounts (IRAs) owned by an individual are taken into account, according to a recent Employee Benefit Research Institute (EBRI) analysis based on its unique EBRI IRA Database.™1

In fact, according to a recent EBRI report2, in 2010 the average IRA individual balance (all accounts from the same person combined) was $91,864, while the median balance was $25,296. By comparison, the average and median account balance of all IRAs was $67,438 and $17,863, respectively. Compared with 2008, the average and median individual balances are up 32 and 26 percent, respectively.

Individual retirement accounts (IRAs) are a vital component of U.S. retirement savings, holding more than 25 percent of all retirement assets in the nation. Moreover, a substantial portion of these IRA assets originated in other tax-qualified retirement plans, such as defined benefit plans (pensions) and 401(k) plans, and were moved to IRAs through rollovers from those plans.

Keeping up with, and managing, retirement savings accounts remains both a challenge and an opportunity for individuals, all the more so when those savings are held in multiple accounts and locations. Similarly, an understanding and appreciation of the complete picture offers the best perspective for crafting effective retirement savings policies.

Sometimes you can’t see the forest for the trees – but, as the data suggest, it’s important to remember that the “forest” is the sum of all the trees.

- Nevin E. Adams, JD

1The EBRI IRA Database™ is an ongoing project that collects data from IRA plan administrators. For year-end 2010, it contains information on 14.85 million accounts for 11.1 million unique individuals with total assets of $1.002 trillion. A unique aspect of the EBRI IRA Database™ is the ability to link the balances of individuals with more than one account in the database, providing a more complete picture of their IRA-based retirement savings. For more information, see Individual Retirement Account Balances, Contributions, and Rollovers, 2010: The EBRI IRA Database TM here.

2Individual Retirement Account Balances, Contributions, and Rollovers, 2010: The EBRI IRA Database TM

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