I went to a State of the Union watch party on Tuesday night at a cozy pub in the center of downtown Nashville with a friend. We arrived early and secured prime seats at the bar directly in front of their multiple televisions. If you've never attended one of these parties in your city, they are highly entertaining – think drinking games, cheering, yelling at the television, etc. It's a lot more fun than watching a major political event at home, sipping a glass of whiskey, and following along with real-time conversations via twitter.
Though I attentively listened to the entire speech, I was most interested in hearing about President Obama's new retirement plan. Not expecting a ton of details during the SOTU, my ears perked up when that portion of the speech arrived, and admittedly, my initial reaction was laughter. MyRA, seriously? Who green-lighted that name? But the personal finance blogger in me immediately started searching twitter for articles with further details.
What Do We Know?
MyRA is targeted at Americans who are not currently offered a retirement savings vehicle through their employer. It will be heavily pushed to companies, pointing out that there are no contribution or administration requirements. MyRA will be tested by companies who agree to sign up by the end of 2014. Workers may contribute if their household income is less than $191,000 per year.
Similar to a Roth IRA, MyRA contributions will be after-tax and the money can be withdrawn tax-free in retirement. One of the main distinctions, however, is that MyRA contributions can only be invested in government savings bonds. Also, there are no fees, and the principle is protected.
The initial contribution can be as low as $25 and workers may contribute as little as $5 at a time through automatic deductions from their paycheck. Also similar to a Roth IRA, the maximum contribution limit per year is $5,500. Once the balance reaches $15,000, workers are required to roll the account over to a private IRA. According to the White House, workers can expect to earn returns similar to their Thrift Savings Plan's Government Securities Investment Fund. This fund returned an average of 3.6% between 2003 and 2012.
Will It Help?
While I applaud the administration for addressing the current retirement crisis and attempting to offer a solution, I have mixed feelings on whether MyRA will have any real type of impact.
Perhaps the biggest positive is the low barrier to entry at just $25 to open. Encouraging Americans to get in the habit of saving regularly, even at increments as small as $5, is a step in the right direction. If we try to view the plan as “a call to action” rather than a “cure-all”, maybe we'll see MyRA in a more positive light.
Would I personally invest in MyRA? No.
Despite being one of the more than half of Americans without an employer-sponsored retirement vehicle, MyRA doesn't make sense for someone my age and in my financial position. For starters, I am extremely fortunate to have had the ability to save enough money to afford the minimum buy-in for the Vanguard index funds I own. Also, at 29, I have no desire to invest solely in government bonds. The rate of return is simply to low.
MyRA is an ambitious initiative, but I'm encouraged that the government is acknowledging the issue, and starting the conversation.
Readers: What do you think about MyRA? If your company signs on, will you consider investing in this account?