Why President Obama’s My RA Won’t Change a Thing About Retirement

In President Obama’s 2014 State of the Union Speech he mentioned the myRA,

Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can. And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.

While I plan to update this post when more information comes out about the product, the Treasury’s website thus far hasn’t provided any real information,

a new simple, safe, and affordable “starter” retirement savings account that will help millions of Americans begin to save for retirement.

Despite the lack of information I can safely say that whatever myRA is, it won’t change retirement and/or retirement planning.

Why Won’t the myRA Change Retirement?

According to the Investment Company Institute,

An estimated 48.9 million U.S. households, or 40.4 percent, owned IRAs as of 2012. An estimated 39.4 million households owned traditional IRAs, making it the most common type of IRA. A total of 20.3 million households owned Roth IRAs, and 9.2 million U.S. households owned employer-sponsored IRAs such as SEP IRAs, SAR-SEP IRAs, or SIMPLE IRAs

***

At the end of the fourth quarter of 2012, an estimated 46 percent of IRA assets were held in mutual funds, while the remaining assets were managed by brokerage accounts, banks, and insurance companies. In 1990, mutual funds’ share of IRA assets stood at 22 percent

and from Wikipedia

The average and median IRA account balance was $54,863 and $15,756, respectively, while the average and median IRA individual balance (all accounts from the same person combined) was $69,498 and $20,046. The average is significantly higher than the median (over three times higher), reflecting significant positive skew – very large balances increase the average.

So if IRAs and its cousins are “popular” with 50,000,000 or so participates why won’t the myRA matter for most American’s retirement?

  1. If it is a bond type product it won’t nor should it be used for those who need  to take risk to increase their returns.
  2. American just don’t save that much money in their IRAs and Roth IRAs.  Look at those average and mean balances?! They just aren’t that high.

So since most people don’t save enough for it to matter and this product probably isn’t the right place to save/invest for most the myRA is just likely not to matter, but I hope I am wrong. One way to make it matter? Turn the myRA into a non-sustainable deferred income annuity similar to that other government program that is an actuarial disaster but everyone puts their faith in …social security!

9 Responses to Why President Obama’s My RA Won’t Change a Thing About Retirement

  1. The scary part, which I hope I’m wrong on, is they will at some point require us to convert existing retirement accounts into this one.

    The only ones who will take advantage of this program is (surprise) upper middle class individuals (otherwise known as “wealthy” to the Obama administration).

    The government needs more bond buyers, and offering MyRA is one way to do it. A government based pension has been discussed many times by Liberal economists to help the “failure” of 401(k)s. The problem as I’ve mentioned previous is individuals don’t or can’t save enough. This will do nothing to solve either issue.

    http://investorjunkie.com/28084/retirement-accounts-flawed/

    I’ll pass and hope this one too dies on the vine.

    • “The scary part, which I hope I’m wrong on, is they will at some point require us to convert existing retirement accounts into this one.”
      – This would be interesting to me. Would we be forced to invest in just the bond? If so then it would destroy the stock market considering the money that pours in from retirement accounts. Doubt this would happen – too much money on the other side.

      The only ones who will take advantage of this program is (surprise) upper middle class individuals (otherwise known as “wealthy” to the Obama administration).
      – EXACTLY! And it is likely to even be the upper middle

      The government needs more bond buyers, and offering MyRA is one way to do it. A government based pension has been discussed many times by Liberal economists to help the “failure” of 401(k)s.
      – I hate the failure of the 401k discussion! So frustrating. If they wanted to solve it they should have made this an appropriately priced gov’t backed deferred income annuity (i.e. pension) – I would have bought one!

  2. I guess I thought of the MyRA as simply an alternative for folks that aren’t offered a 401k or similar plan through their place of employment. Gives them a way to get some tax advantages while also providing for some sort of guaranteed safe harbor and small return. Admittedly, I haven’t read much of anything on these proposed accounts – this was just my immediate first impression on hearing about them. Having it tied to bonds does seem like a way to generate some more cash for the government – maybe a backdoor way to avoid more and more debt ceiling fights?

    • “I guess I thought of the MyRA as simply an alternative for folks that aren’t offered a 401k or similar plan through their place of employment.”
      – They already have that through Traditional/Roth IRAs.

      “Having it tied to bonds does seem like a way to generate some more cash for the government – maybe a backdoor way to avoid more and more debt ceiling fights?”
      – Doubtful as they are limiting the balance to $15K. The gov’t would never every single able body man and woman to have one.

      • Right on both accounts – I didn’t read anything about the accounts until later. Limiting it to 15K is weird and now that I have a bit more information, I just don’t get it. Other than as a way to let people invest in SOMETHING that pays a little more that savings accounts and eliminates transaction costs.

  3. I was waiting for someone to write about this! I nearly fell off my rocker when this story came out. This is the best part:

    “MyRA guarantees a decent return with no risk of losing what you put in.”

    Everything worthwhile has risk. If this thing is going to guarantee “a decent return,” I’d love to see what the return actually is. I’m guessing south of 5% Probably far south.

    Can’t wait to hear the details.

    • Details won’t matter! The only people that’ll even know the details are nerdy PF bloggers and those already investing in real retirement accounts lol

  4. Intermediate treasuries are someplace to put some of our retirement funds when we are in retirement. They are not very good for people who are saving for retirement. I wish the government would allow people who do not have a workplace retirement plan to invest the same maximum amounts as currently allowed in 401(k) plans into their IRAs.

    • So weird that there is a different number! I have never read a good justification. If you are self employed you can get higher is a SEP

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