The Bailout Versus Your Retirement Dollars

If you think $700 billion is a big number, check out these retirement figures.

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Seven hundred billion is a massive number that we’re all grappling to put into some sort of context. Collectively, Americans have almost seven times that amount stashed in IRAs, the most popular retirement savings vehicle besides Social Security. Total assets in IRAs grew 12.5 percent in 2007, reaching a record $4.75 trillion, according to recent research by the Employee Benefit Research Institute. In contrast, 401(k)-type plans held $3.49 trillion and traditional pensions contained $2.33 trillion in 2007.

The phenomenal growth in IRA wealth is fueled by approximately $200 billion in rollovers, not new contributions, which only accounted for about $40 billion. Most IRA assets are invested in mutual funds (47 percent), followed by brokerage accounts (38 percent), life insurance companies (8 percent), and banks/thrifts (7 percent), EBRI found. About 90 percent of all IRA wealth is in traditional IRAs that are taxable upon withdrawal, but most new contributions go into Roth IRAs, where you pay the taxes now and get your withdrawals tax free in retirement.

When IRA contribution limits were increased in 2002, the average amount tucked away increased, but a larger percentage of workers did not participate. Only about 10 percent of eligible taxpayers contribute to an IRA to save for retirement.