Photo courtesy of OaklyOriginals via Flickr, modified by Curiousmatic.
In Obama’s 2014 State of the Union address, a new retirement plan called MyRA was introduced for the first time. What is it, and how will it work?
MyRA (My Retirement Account), which was announced by President Obama during his State of the Union address, is a new retirement savings vehicle intended to make it easier for the middle class to save money without risk.
According to the President, the account is “a new savings bond that encourages folks to build a nest egg” which “guarantees a decent return with no risk of losing what you put in.”
Perhaps most surprisingly was the president’s decision to establish the plan through an executive order to the United States Treasury. The White House’s current description is as follows:
Creating “myRA” – A New Starter Savings Account to Help Millions Save for Retirement. The President will take executive action to create a simple, safe and affordable “starter” retirement savings account available through employers to help millions of Americans save for retirement. This savings account would be offered through a familiar Roth IRA account and, like savings bonds, would be backed by the U.S. government.
Though not much else has been confirmed about how myRA will work on a technical level, Bloomburg reports that this starter bond would allow employees to invest a certain amount from each of their paychecks in U.S. government bonds, which after reaching a maximum would roll over into an IRA.
The point is to make retirement plans universally available to reduce dependency on employers, which could be especially beneficial to lower-income workers. Enrollment would be voluntary, and tax-free withdrawals could be made at any time.
Why is it important?
As we’ve written about in detail at Curiousmatic, more than 75% of Americans nearing retirement have less than $30,000 in their retirement accounts, with the median being $0.
This means that at retirement, almost half of middle-class workers may end up living near poverty with a $5 daily budget for food – something Forbes has called “the greatest retirement crisis in American history.”
While MyRA does not replace 401(k) and 403(b) plans, which we’ve also written about here, it works in a similar way, allowing workers to save money and even transfer it from one job to the next.
Workers can open the account with as little as $25, according to Investment News, and make automatic contributions of as little as $5 a month.
Possible downsides and limitations
Some say that rather than actually fixing the retirement crisis, myRA only adds to the hodgepodge of options available for retirement savings already available, none of which have been especially effective in recent years.
In addition, myRA is still not as good as a traditional 401(k) account because there is no employer match, and only one investment option.
While it’s good news that the bond poses no risk, it’s also true that the earnings on the account will be limited.
Why does it require executive action?
MyRA is only one of 12 executive actions President Obama has proposed, as identified in this White House fact sheet.
Other executive orders include raising minimum wage to $10.10, removing retirement tax breaks for the wealthiest while improving them for the middle class, and a government-wide review of federal training programs.
These executive actions reflect the President’s top priority of “ensuring middle class Americans feel secure in their jobs, homes and budgets,” with or without Congress approval.
Despite these (arguably) noble intentions, this high amount of executive action may also contribute to the record-high concern of 60% of Americans that the government has too much power.
What are your thoughts on the myRA plan? Tweet us @curiousmatic.