401(k) Or IRA? Workers Who Contribute To Both Save More

By Heather Struck

NEW YORK, March 14 (Reuters) - Americans often view saving for retirement as a choice between contributing to a workplace 401(k) plan or funding an IRA, even though the majority of people are allowed to contribute to both at the same time.

A new report by Fidelity Investments indicates that as companies cut down on pension plans, more workers are contributing to both Individual Retirement Accounts (IRA) and 401(k) plans. Those who contribute to both end up saving much more overall, the study showed. In addition, workers are more likely to save for retirement if they seek financial advice.

On average, Americans have saved either $5,750 annually in a workplace 401(k) account, or $4,150 in an IRA account, far below the maximum limits allowed, according to Fidelity's research. Workers under age 50 could contribute up to $16,500 to a 401(k) plan in 2011. The maximum IRA contribution for the same age group in the 2011 tax year is $5,000.

Employees who only have 401(k) accounts have saved an average total of $69,100. But people with combined accounts stashed away an average of $212,600 for retirement, according to Fidelity's study.

Saving for retirement in a tough economy isn't always a priority, though. While most U.S. households are eligible to
make contributions to IRAs, only 14 percent of them did so in 2010, according to data from the Investment Company Institute. And 401(k)savings plans aren't available at every employer. In 2012, only 74 percent of employed workers were offered any kind of retirement plan at work, down from 77 percent in 2007, according to the 2012 Retirement Confidence Survey, published by Employee Benefits Research Institute this week.

In addition, workers are taking a more active role in their savings, and many are looking to financial professionals for
advice.

Between 2008 and 2011, there was a sharp jump in the number of Americans seeking guidance with their retirement saving plans, Fidelity said. One-on-one retirement planning sessions grew 48 percent in the three-year period. Attendance Fidelity's retirement seminars has increased 68 percent, the Boston-based company said.

"More investors are seeking guidance, and that is positively impacting the overall savings rate," said Beth McHugh, vice president of market insight for Fidelity.

The largest provider of IRA accounts in the United States, Fidelity had $725 billion in IRA assets under administration in the second quarter of 2011.

Comments

[yogajan]

05:00 AM on 03/16/2012

The other part of the equation is to spend wisely while still working. Then you will be able to put away some money for retirement. I know it is not always possible, but every time you make a purchase consider whether not it is something you can do without.

For the few snarky posters here--at least we are assured medical care and a modest social security income when we get older. I know the GOP thinks Medicare is terrible, but it has kept millions of people from dying too young or being improvished.

[MisteRational]

10:00 PM on 03/15/2012

Die young.

[JC Boomer]

05:40 PM on 03/15/2012

We are going to be a nation of impoverished elderly people if the statistics are correct, $212,600 won't let you stay retired for very long.

[spriddler]

05:49 PM on 03/15/2012

It sure won't. That is a depressing statistic.

[dansup]

05:52 PM on 03/15/2012

I doubt most have even that

[doctor pangloss]

05:35 PM on 03/15/2012

The average American worker cannot afford to put much money in a retirement fund because of the diminution of most Americans wages.
The best way is to form and join a union and demand that those suckers offer lifetime pensions and paid medical benefits like I did in 1948.
Took me three different strikes and 34 years of service but I got out at 56 and still collecting all the goodies that I earned after giving the company the best years of my life.
FORCE CORPORATE AMERICA TO PAY THEIR DUES TO THE AMERICAN WORKER.

[blacksmithn]

05:22 PM on 03/15/2012

Well, duh. Oh, by the way, if you put two hoses in a bucket, it fills up in less time. And if you shovel twice as fast, that hole you're digging will get done quicker.

Investment advice like this, I don't need.

[Nirzwan Bandolin]

05:10 PM on 03/15/2012

I will contribute when I have the money to contribute. Until then I will invest heavily in groceries and shoes and work pants. Don't you hate pants?

[blacksmithn]

05:23 PM on 03/15/2012

That's why I'm not wearing any.

I also hate vinyl upholstery...

[AbstractImp]

05:00 PM on 03/15/2012

The best way to save for retirement
in a society of vultures
is to die young.

[whoaDaddy]

04:56 PM on 03/15/2012

this advice is given by a company, fidelity investments, that will profit from our contributions to either type of legalized theft.

While I don't earn as much, I put my money in savings and CDs. These are guaranteed by the government and can't disappear into some trader's pocket at the drop of the stock exchange.

anyone still putting money into a 401(K) or an IRA is stupid and waiting to be fleeced again.

[spriddler]

05:14 PM on 03/15/2012

My account values have all more than bounced back as they have for most everyone that rode the storm out. Markets are volatile, and that is not going to end. Guaranteed investments are appropriate for people in or nearing retirement, but their flip side is that they guarantee not just protection but also dismal returns. You would have to save 40% of your income to have a have a maintain your lifestyle and retire at 65.

[jel3800]

11:01 PM on 03/15/2012

that is treading water with typical inflation...with the current and future inflation, you be loosing ground quickly

[go to the center]

04:46 PM on 03/15/2012

Those of you who understand this this topic please share because I'm at a lose - where should we be putting our money right now? Where would our money get the best return and is safe at the same time - maybe that doesn't even exist anymore.

[spriddler]

05:20 PM on 03/15/2012

Historically safety and high returns do not coincide. As a general rule the safer the investment the lower the return. Most managers today are saying buy large value with a focus on dividend paying stocks. Growth and income funds would generally be a good place to start. Municipal bonds and high yield corporate bonds are also mentioned. There are mutual funds that offer quick diversification within each of those classes. Picking funds is not easy. The two things most important to me are 10 year returns and manager tenure.

[go to the center]

06:03 PM on 03/15/2012

Thank you for the info - things are so scary for people right now .

[Leond]

04:39 PM on 03/15/2012

They have the cause and effect flipped here. People who contribute to both do so because they've hit the maximum for contributions on one or the other plan.

[notAMoron]

04:49 PM on 03/15/2012

Not necessarily, I contribute to my 401k up to the max match then I contribute any additional money I can afford to the Roth IRA. If I was able to max out the roth ira last year I would have gotten close to $16,500 between them, but I bought a house so the down payment crimped my ability to put money away in the IRA.

[spriddler]

05:27 PM on 03/15/2012

A lot of people contribute enough in their 401(k) to get the maximum employer match and then contribute to a Roth with after tax money.

[notAMoron]

04:32 PM on 03/15/2012

Being HP, I was expecting the answer to be Social Security and this to be an article pushing for FICA to be tripled and the income gap to be removed and extended to non-earned income.

[cj7874]

04:30 PM on 03/15/2012

401k & IRA are not benefits - just another way for Wall Street to scam more money from the herd.

[spriddler]

05:29 PM on 03/15/2012

If you're not investing you're not retiring. At least not at a reasonable age or with a lifestyle resembling the one you had while working.

[jel3800]

11:13 PM on 03/15/2012

dont forget you pension--that fund is also being invested. you might want to decline that when they offer it

[knotsofast]

04:17 PM on 03/15/2012

Forget it. Just wait till the Obama tax increases hit in 2013. Bye-bye $$$$!! Tax on capital gain up 60%!

[Lenape105]

04:38 PM on 03/15/2012

Invest in a Roth-IRA.

[knotsofast]

04:41 PM on 03/15/2012

`Only 5 grand a year is the limit? Still need to pay taxes upfront .

[whoaDaddy]

04:57 PM on 03/15/2012

i had $60 in capital gains so i'm not worried. if you have enough capital gains to worry, then pay up.

[SDGypsy]

04:15 PM on 03/15/2012

I was investing 7% of my salary in 2007...now I save $50 a month to my 403B. What a joke. Luckily, I am one of the Government workers that has a real retirement plan. I have to contribute more to the plan than I did 14 years ago but it is a guaranteed retirement...not subject to the pump and dump of the rich like a 401K.

[Callout]

04:12 PM on 03/15/2012

"far below the maximum limits allowed". These statements always make me laugh. Most of the 99% do not have $16,000 to contribute to a 401k, and most, not $5000 to an IRA.

"But people with combined accounts stashed away an average of $212,600 for retirement"

I hate to break it to you, but you won't stay retired long with $200,000. Most people are struggling to make a living. If you put away $1000 when your son or daughter is born and never touch it compounded at a conservative 5% interest, you end up with $23,000 at age 65. If you add $500/year to it, you end up with $263,000. Why doesn't the government do this for everyone? Advantage of the Government doing it, is that you cannot access that money until you retire. Everyone would win and have a minimum safety net.

[jel3800]

11:20 PM on 03/15/2012

you want the government deciding where to invest your money?
Actually a good idea IF they allowed you to direct it and still keep enough for a saftynet in the event your investments still went down hill

[ordinaryguy]

12:52 PM on 03/16/2012

sounds like the banks. private gains but public losses.