Making Ends Meet: The Importance of Proper IRA Investing

New research from Vanguard reveals a critical mistake that millions of workers are making with their IRA rollover accounts, potentially costing them $130,000 or more in investment gains.

The Problem with IRA Investments

Vanguard highlights a key issue in the retirement system where IRAs are required to convert contributions and rollovers into cash, unlike 401(k) plans with preset investment options. Many employees are unaware that their IRA savings are being converted into cash, which historically yields lower returns compared to stocks and other investments.

The Cost of Staying in Cash

A study by Vanguard found that 28% of IRA accounts were still invested in cash after seven years, missing out on significant investment growth. Younger investors, low-income workers, and women are most likely to keep their IRA savings in cash, potentially due to a lack of awareness.

How to Avoid Cash Traps

Vanguard recommends checking your IRA account and selecting new investment options such as stocks or mutual funds. Additionally, they propose legislation requiring IRA funds to be included in default investment alternatives to prevent cash traps. Taking an active role in reviewing and adjusting IRA investments can lead to better long-term returns and financial security in retirement.