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Publication #FAR9044

 

Household Debt and IRAs 1

Josephine Turner and Donna Davis2

Figure 1. 
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I come from a family of extraordinary longevity, including an uncle who lived to 108. While, hopefully, my husband considers this a good thing, if we weren't planning for a long retirement, it could be catastrophic! Funding so many years of retirement is a personal as well as a societal problem.

As the national population lives longer, many employers have phased out the defined benefit plan for new employees and in its place promoted a defined contribution plan [401(k), 403(b)], where employees assume the risk of investing their retirement funds. The 401(k) plans have been successful because most employers have matched a portion of the employee contribution to the plan, and once an employee is enrolled they tend to remain in the plan.

However, numerous research studies show that only about half of U.S. households are adequately preparing for retirement. Analyzing the Survey of Consumer Finances, U.S. Treasury economist David Bernstein found that families are less likely to have an IRA when they are bigger consumers—that is, they have higher consumer debt and credit card debt. Also, households are less likely to own an IRA when they are low-income or divorced, while those who own their own homes and have medium to high income are more likely to have an IRA.

Financial educators believe that as families understand the tax benefits of an IRA and the matching benefits of a 401(k), they'll be more likely to increase their retirement fund.

Listening, learning, and living together: it's the science of life. "Family Album" is a co-production of University of Florida IFAS Extension, the Department of Family, Youth and Community Sciences, and of WUFT-FM. If you'd like to learn more, please visit our website at http://www.familyalbumradio.org.

To listen to the radio broadcast:

http://www.radiosource.net/radio_stories/283.mp3

http://www.radiosource.net/radio_stories/283.wav

Reference

Bernstein, D. (2004). Household debt and IRAs: Evidence from the survey of consumer finances in the financial counseling and planning education. Financial Planning and Education, 15(1).

Footnotes

1.

This document is FAR9044, one of a series of the Family Youth and Community Sciences Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Broadcast as program 283 and published March 2009. Reviewed March 2012. In the interest of time and/or clarity, the broadcast version of this script may have been modified. Visit the EDIS website at http://edis.ifas.ufl.edu.

2.

Josephine Turner, professor, and Donna Davis, senior producer, Family Album Radio, Department of Family, Youth and Community Sciences, Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL 32611.

The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. For more information on obtaining other extension publications, contact your county Cooperative Extension service.

U.S. Department of Agriculture, Cooperative Extension Service, University of Florida, IFAS, Florida A. & M. University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Nick T. Place, Dean.