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What the Joneses Really Do with Their Retirement Funds


Sure, you know the basic retirement investment rules — things like: put an amount equal to 120 minus your age in equities, choose funds with low expense ratios — but let’s be frank: people don’t always follow the rules. So, how do they really invest in their retirement funds?

A new study from the Employee Benefit Research Institute attempts to shed light on how people are investing in their IRAs. The data, which looks at more than 14 million IRA accounts of 11.1 million individuals, gives us some basics — for example, 67% of IRA owners have a traditional or rollover IRA, 23.4% a Roth IRA and 9.6% SEPs and SIMPLEs — but it also reveals some more surprising findings. Here are four things about how Americans invest in IRAs that you might not realize.

1. Men aren’t from Mars, women aren’t from Venus

Looks like most men aren’t the extreme risk-takers they’re sometimes made out to be. In fact, when it comes to investing, their choices look a lot like, well, women’s choices. The asset allocation of men and women IRA owners is remarkably similar across age groups: For example, women and men under age 25 had 49.1% and 49.5%, respectively, in equities, while women and men 70 and older had 33.1% and 33.6%, respectively.

The reason: “A lot of the gender difference we see in asset allocation is because of income differences,” says Craig Copeland, a senior research associate at EBRI. “But when it comes to IRAs, income levels between men and women are more homogenous.”

2. Roth owners take more risks

Roth IRA owners are significantly more likely to have 90% or more of their assets in equities than those who own other IRA types. What’s more, the typical Roth IRA contains 51.4% equities and 6.6% bonds, compared to 39.2% and 14.3%, respectively, for the typical traditional IRA.

This is the “most significant difference among the IRA types,” according to the study.  This is likely a function of the age of Roth IRA owners.  “On average, they are younger and tend to be in the accumulation stage,” says Copeland.

3. The more you’ve saved, the less you’re invested in equities (regardless of age)

Those with higher balances in their IRAs have a significantly lower percentage of equities in their portfolios than those with lower IRA balances do. While this may seem like a ‘duh’ (you’d assume that those with higher balances are also older, and thus less invested in equities), it’s actually not, because this holds true regardless of age.  Thus, even younger investors with high balances have lower equity allocations.

This finding is tough to explain, but Copeland says it doesn’t necessarily mean these high-balance investors are more conservative. “They may have additional money in something like real estate,” he says.

4. Gen Y is the most ‘balanced’

No, we don’t mean they’ve got more life balance than mom and dad do (though with all that yoga, they might be trying to), but it’s interesting that 25 to 34-year-olds have a higher percentage of their portfolio invested in balanced funds than does any other age group. In fact, this age group has 22.1% of their portfolio in balanced funds, compared to 16% for 35 to 44-year-olds, 14% for 45 to 54-year-olds and 11.6% for 55 to 64-year-olds.

The reason: Balanced funds may appeal to younger investors who aren’t as sure about what to do with their money, says Copeland.


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    • Well written and informative. I only would like to add the importance of ignoring the Joneses. I wrote a chapter about the dangers of trying to keep up with them in my new book about handling fear as an investor. What they do is not necessarily what you need to do.

    • Whether you are in retiremnet or still far from that time in your life, there’s no reason that your stock portfolio shouldn’t be generating additional income for you.

      Understanding the need for greed is key to making income from your investments by capitalizing on the greed of others.

      The Option to Profit book spells out a very conservative strategy that creates a predictable stream of income. Read my daily blog at http://szelhamos.com for a humorous look at the markets

      The Option to Profit book is available at “Amazon”:http://amzn.to/k0L5lO and details the strategies necessary to implement the investing tools that hedge fund managers use to protect assets and maximize profits.

    • Thus, even younger investors with high balances have lower equity allocations.

      This finding is tough to explain, but Copeland says it doesn’t necessarily mean these high-balance investors are more conservative.

      Tough to explain? Who wants to have a LARGE amount of money in THIS stock market? Anyone that has been in the market for more than ten years knows what a HORRIFIC beating you can take in stocks. With day traders, and programs instead of people making the decisions, do you really want to have bet the farm when the next “correction” comes? Are you gonna REALLY let the savvy wall street crowd wipe out your life savings?

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.