Not much gain in Obama's 'myRA'
People should save for their futures, but not necessarily in President Obama's new government-run retirement plan.
Almost any government program that encourages people to save for retirement deserves applause, but beyond the good intentions, it's hard to see significant value in President Obama's "myRA" program.
He said it offers people an opportunity to make small contributions — like $25 — and that's an advantage to those who are unable to meet the $1,000 minimum many private retirement plans require. Anything that establishes a habit of savings is a benefit.
Obama also noted that his plan poses no risk in terms of lost principal, something that might appeal to those who are highly risk-averse.
Beyond that, the Obama plan has little to no advantage over Individual Retirement Accounts that already are available to all American workers. Further, it's unrealistic to think that a solid retirement account can be built without substantial capital appreciation and that opportunity is not available under Obama's low-interest myRA (as in "my IRA").
In his State of the Union address, Obama noted that four in 10 American workers do not have access to a 401(k) program, a tax-deferred plan that allows individuals to divert money from their paychecks into various investment options. But every worker has access to either a tax-deductible IRA, in which earnings grow tax-free until they are withdrawn, or a Roth IRA, a non-tax-deductible plan in which money already taxed can be allowed to grow and then withdrawn on a tax-free basis.
President Obama has ordered the Treasury Department to create the government-administered myRA program, and a pilot program is expected within months. But most people won't find much appeal to the idea of putting money in a government bonds that pay interest of 2 percent-plus. Even if the money is withdrawn tax-free, that's hardly more than the annual inflation increase, and that diminished return won't create much appeal.