Retirees may not have enough income from retirement plans alone to cover their financial needs during retirement, according to a report publicly released by the Treasury Inspector General for Tax Administration (TIGTA).
The Internal Revenue Code provides preferential income tax treatment to individuals who save for retirement through individual and employer-sponsored retirement plans. In addition, the IRS is required to ensure retirement plans comply with tax laws to maintain tax-exempt status. TIGTA performed this audit as part of its Fiscal Year 2010 Annual Audit Plan to identify retirement plan trends based on a wide range of statistical indicators.
TIGTA found that: (1) a higher percentage of American workers are participating in employer-sponsored retirement plans; and (2) the value of retirement plan assets grew substantially between Calendar Years 1977 and 2007. However, for employer-sponsored defined benefit plans, the average value of plan assets per individual was $62,600 in Calendar Year 2007. As a result, many retirees will continue to rely on Social Security and other forms of income for retirement and may run the risk of outliving their retirement assets. Furthermore, more individuals are withdrawing retirement savings before retirement.
The TIGTA report identified some positive trends and some trends that are of concern; however, much of what is presented in the report may change substantially as data become available for Calendar Years 2008, 2009, and 2010, the time in which the country experienced a significant economic downturn and the beginnings of a recovery. In addition, the report data cover the vast majority of employer-sponsored retirement plans, but may not include some retirement plans for churches, government agencies, and some smaller employers.
"Our report found that, with longer life expectancy, both taxpayers' investment decisions and changes in the economy will continue to play important roles in ensuring a financially secure retirement," said J. Russell George, Treasury Inspector General for Tax Administration.
TIGTA did not make any recommendations in this report, but Internal Revenue Service management reviewed the report and offered clarifying comments.