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Mon., March 5, 2012 2:14pm EST (Reuters) - Sam Lazarus would love nothing more than to save money in his individual retirement account.

The 41-year-old is co-owner of a ServiceMaster franchise in Wichita, Kan., providing household cleaning and restoration services. But ever since 2009, when the Great Recession began to really hit families hard, the phone has been ringing less.

"Our business cycle has been down the last year," says the dad of three (soon to be four). "It's hit a low point, and we're not experiencing any growth. When you have money, you can save; when you don't have any extra money, you can't. It's as simple as that."

As the economic slump dragged on, it manifested itself in lowered IRA contributions. In 2009, Lazarus managed to chip in about $2,000, and in 2010 he contributed a little less. In 2011 he couldn't contribute anything.

"We're not a luxury-loving family, who go out to eat three nights a week," he says. "But we don't have 401(k)s, we haven't been able to save anything for our IRAs, and we're not sure how this year is going to end up, either."

More Americans these days are thinking like Lazarus. With household budgets squeezed, and retirement savings often covered by other vehicles like 401(k)s, it's looking as if the IRA has been dropping down the list of financial priorities. The trend is worrying financial planners, who say reduced savings now can mean pain later for retirees.

According to a new study by Baltimore-based mutual-fund giant T. Rowe Price, only 45% of investors from ages 21-50 are planning to chip in to their IRAs for the 2011 tax year. Among those same investors, 71% made a contribution in 2010.

That's an alarmingly steep drop in a single year. And among the broader public, many of whom don't have investment accounts at all, the percentage of contributors is much lower.

"Although most U.S. households were eligible to make contributions, few did so," reports the Investment Company Institute in a recent look at IRA usage. In 2010, only 14% of households chose to bulk up their IRAs, down from 15% the year before.

That trend line is worrisome to financial planners. Americans' readiness for retirement is already shaky by some measures: 56% of workers report that their household's total savings and investments are less than $25,000, according to the Employee Benefit Research Institute. To fund their golden years properly, Americans will need to erect every possible line of defense: 401(k)s, IRAs, Social Security.

"The economy's seen hard times, and it's been cutting into retirement saving," says Timothy Yee, co-founder of Green Retirement Plans. "Some people just can't afford it because they're living day-to-day and paycheck-to-paycheck. But for those who can, I tell my clients they have to save until it hurts. Because over time, the results of those savings can be staggering."

After all, forgoing a single $5,000 contribution (the current annual maximum, for both traditional and Roth versions) will have out-sized ramifications, especially for young savers. A 20-year-old putting that amount aside, with a 6% return compounded annually, will end up with almost $75,000 by age 65 - without ever putting in another dime.

Of course, even if Americans have been placing their IRAs on the back burner, that doesn't necessarily mean they're forgoing retirement saving entirely. For some savers they're making a conscious choice, to opt for one savings vehicle over another.

That's the tack taken by Eli Lehrer, a vice president of the Washington, D.C.-based think-tank Heartland Institute. The 35-year-old married dad of one used to max out his Roth IRA every year, but has been opting to trim back those savings.

"In recent years I've been shifting my wife and I from IRAs to 401(k)s," he says. "You can save much more in a 401(k), and the amount you can save in a Roth account isn't enough to live off of anyways. And I think the country will increasingly shift to a consumption-based tax system, so the relative advantage of the Roth will diminish over time."

Indeed, the 401(k) has become the dominant retirement-savings vehicle for Americans. More than $172 billion gushed into the plans in 2009 (the most recent data available), according to David Wray, president of the Plan Sponsor Council of America. In a penny-pinching era when Americans often can't fund all of their savings goals, but have to choose, 401(k)s may be siphoning cash away from IRAs.

That's one finding of the T. Rowe Price study, which found that 42% of young investors who eschewed IRAs thought their 401(k) savings were plenty. Others blamed the economic climate: They just couldn't afford it, or were worried about job uncertainty, or scared off by market volatility.

As a result, financial advisors like Yee hope IRA contributions are just in a temporary slump because of the brutal economy, and will be spurred again by a recovery. With Social Security less than fully solvent for the long haul, and the stock market having been dead money for the last 10 years, Americans like Sam Lazarus will need to use every tool at their disposal to supercharge their retirement saving.

"We're modest, Midwestern folks who want to save," says Lazarus, who hopes that the business phone will start ringing again. "Hopefully we'll be able to do that again soon, because we're not a big company with a 401(k) match. We're a small business, and nobody's contributing to our future except us."

(Chris Taylor; Editing by Linda Stern, Beth Gladstone and Andrew Hay)

© 2010 Thomson Reuters. Click for Restrictions.

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