Saving for Retirement with the myRA

February 27, 2014

In his recent State of the Union speech, President Obama introduced a new initiative called the “myRA”, designed to encourage Americans to save more, particularly for retirement.   The premise behind the myRA is that many Americans work where traditional payroll-deduction retirement programs are not available.  Even though such workers are able to save for retirement on their own through a Traditional IRA or a Roth IRA, many do not.

The myRA attempts to solve many of these issues.  Under the proposal, these accounts would operate much like a Roth IRA and are established by businesses for their employees.  Contributions are made via payroll deduction and contributions can be as little as $25 to start, and $5 thereafter.  Account owners would be able to take their myRA with them if they change jobs, or roll over the account into a normal Roth IRA at any time.  There would be only one investment choice; an ultra-conservative Fund modeled after the Federal Thrift Savings Plan’s G Fund.

The myRA program has some advantages, but also some drawbacks.  The payroll-deduction feature is a strong plus.  As a ‘starter’ retirement account, many workers who have little investing experience may be motivated to save in the myRA.  And any kind of savings for retirement is better than none at all.

Some aspects are troubling.  Access to contributions without penalty is not a good idea; raiding such accounts for short-term spending may be too tempting. The anticipated low returns may discourage those who feel their money isn’t growing enough. Finally, offering a new retirement savings vehicle isn’t going to solve the significant retirement income/Social Security problem in the US.  Workers may need more incentive (or saving capacity above just meeting monthly bills) to put more away for the future, not another savings vehicle.