MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
an InvestmentWires' Publication
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MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication |
|
Monday, April 5, 1999 Study Shows Roth IRA Off to Weak Start If you're planning on marketing the new Roth IRA to the general public without educating them, better think again. While the number of investors opening an IRA is increasing steadily, few investors have shown interest in the new Roth IRA, according to an annual survey by American Century Investments. This lack of interest comes despite what has been one of the most intensive advertising campaigns for a financial product in recent history. In spite of endorsements by personal finance experts, the government, and the financial services industry, retirement investors overwhelmingly prefer the traditional IRA to the Roth IRA, according to the "American Century Retirement Snapshot," a survey of 753 retirement savers. Among those respondents planning IRA contributions for the current tax year, 60 percent are planning to fund their traditional IRA, with only 25 percent planning to open a Roth. Only five percent will fund both. "Many retirement investors are missing out on a tremendous opportunity and over time the road not traveled could result in smaller retirement nest eggs," said Stephen Advokat, American Century's manager of education and finance. "This is especially surprising in light of the Roth's many attractive features." The Roth IRA first became available last year and offers tax-free withdrawals on earnings, assuming the account is five years old and the investor is at least age 59½. Unlike traditional IRAs, investors are not required to take minimum distributions once they hit 70½. Nevertheless, few investors are interested in converting their traditional IRAs to Roths. Although 38 percent are considering a switch, only 13 percent had actually done so at the time of the survey. A full quarter of the respondents saw "no benefit" to converting their accounts. These same 753 retirement savers also struggled when asked simple questions about retirement accounts. Although 69 percent of those surveyed do know what IRA stands for, this of course means that almost a third surprisingly do not. In fact 10 percent think that it stands for "Indivisible Retirement Allowance, " according to the "American Century Investments 1999 IRA Test," a series of 10 yes/no and multiple choice questions, included in the overall survey. "In golf they would have called the question about the acronym IRA a gimme," said Advokat. "But seriously, this kind of quiz can be a real eye-opener for financial service providers attempting to educate investors about the importance of saving and investing for retirement." On any given question of the test, between 17 and 49 percent of the respondents indicated that they just "didn't know" the answers. And only 30 percent of those polled could answer six or more questions on the test correctly. When questioned about the Roth IRA, only 17 percent knew the age at which funds can be withdrawn without owing taxes, and more than half failed to identify $2,000 as the maximum IRA contribution for an individual. The survey does, however, indicate that the introduction of the new account has renewed interest in retirement investing. In 1996, the first year of the study, 27 percent of those polled indicated that they would be making an IRA contribution. That number has increased to 33 percent in the latest poll. Another trend identified by the study is an increasing willingness to accept short-term volatility in the market. In 1996, only 14 percent indicated that they were "willing to accept a great deal of short-term volatility for the potential of maximum long-term returns." In the last two years, the percentage of respondents agreeing with that risk statement has ranged from 25-28 percent. Consistent with the changing attitudes toward risk , the percentage of retirement savers reporting stock and stock mutual fund ownership has increased. Four years ago, 32 percent of those polled owned shares in equity funds and 29 percent owned individual stocks in their retirement portfolios. In the 1999 survey, those percentages have increased to 43 percent and 37 percent, respectively. "These changes in investment attitudes are probably fueled by the continued strong performance of the stock market," Advokat said. "It's good to see investors realizing the long-term benefits of including equities in a retirement portfolio. The hope is that they also understand and can truly accept the risk of short-term market volatility." Printed from: MFWire.com/story.asp?s=24741 Copyright 1999, InvestmentWires, Inc. All Rights Reserved |