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NEW YORK (CNN/Money) -
There's been a lot of talk about how adding individual investment accounts to Social Security could boost the national savings rate.
That assumes a lot of workers will take full advantage of the accounts and be realistic about what it takes to fund their own retirement.
A look at the current savings habits and attitudes of workers with regard to 401(k)s and IRAs tests that notion -- a majority say they're behind in savings and underestimate how much they'll need in retirement. All of which offers lawmakers some guidelines as to the best way to set up such accounts, if, in fact, they are ever adopted.
One survey, released Tuesday by the Employee Benefit Research Institute (EBRI), a non-profit research group, found that workers not currently participating in their employers' retirement plans would be more likely to do so under one or more conditions:
- 72 percent cited a matching contribution of up to 5 percent. But a match may not be incentive enough for some: another 13 percent of non-participants said they were already offered that
- 65 percent said they'd like an investment option similar to a lifestyle fund, which automatically allocates workers' investments more conservatively as they age; 66 percent said they would be likely to stay in the plan if their employer automatically enrolled them when they were hired
- 56 percent cited an automated increase in their contributions when they get a raise.
- 49 percent said they'd want mutual fund options with a pre-set mix of aggressive, moderate and conservative investments. Another 19 percent, however, said they were already offered that.
- 35 percent said they'd like a professional financial manager to make their investment decisions for them based on the answers to a questionnaire that they provide the manager. Another 14 percent, however, said they were already offered that.
Among all survey respondents, a majority said they're behind in their retirement savings, yet confident that they'll reach their savings goal by retirement, even if they haven't done a hard-core estimate of how much they'll need. (Over 50 percent said they hadn't.)
The culprits that account for the lag in worker savings: living expenses, child-rearing costs and medical costs. Meanwhile, 20 percent of respondents cited debt as a major problem and another 39 percent cited it as a minor problem.
Sixty-nine percent of workers said they and/or their spouse had some savings for retirement – that's the highest level since 1994.
But more than half said the total value of their savings and investments were less than $25,000, not including the value of their home. And a majority of workers said they expect they will need less than 70 percent of their pre-retirement income.
That's at odds with the reality of today's retirees. Half of the current retirees surveyed by EBRI said they use 70 percent or more of their preretirement income for a lifestyle they characterize as adequate.
What about IRAs?
Thirty-eight percent of EBRI survey respondents said they had an IRA.
Meanwhile, a recent poll from Fidelity Investments found that six in 10 Americans are not currently saving in an IRA.
The reasons given were different depending on age: 43 percent of younger adults said they hadn't gotten around to it due to lack of time or patience; while those between the ages of 35 and 54 cited the pressures of juggling multiple obligations such as daycare and saving for college.
Among the misconceptions respondents had about IRAs, Fidelity found that the vast majority didn't know the federal limit on contributions for all types of IRAs. This year it's $4,000, up from $3,000 in 2004. Another $500 may be added to those limits for investors age 50 or older.
Fidelity also noted several of the IRA myths held by investors. One is that investors assume if they don't qualify for an IRA's tax deduction, an IRA isn't right for them. But a Roth IRA – which lets you invest after-tax money that then grows tax-free -- may be.
To qualify for a Roth IRA, your modified adjusted gross income must be below $160,000 if you're married filing jointly; or $110,000 if you're single. (For more on finding out which type of IRA is right for you, click here.)
Another misconception Fidelity found is that many investors feel they have to make a year's contribution all at once – which can be a daunting task for many. As with a 401(k), contributions to an IRA can be made in small amounts through automatic deductions from your bank account.
If you want to contribute to an IRA and have it count as a 2004 contribution, you must do so by April 15, 2005. Any contributions made thereafter will be counted toward the 2005 limit.
For more on last-minute tax tips, click here.
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