Q&A on Obama's New "MyRA" Savings Program

WASHINGTON (AP) -- President Barack Obama used his State of the Union speech to roll out a plan to coax low- and middle-income Americans into saving more for retirement.

New retirement accounts being set up by the Treasury Department would target workers whose employers don't offer retirement benefits or who haven't started saving yet for old age. The new "starter" savings program is called "myRA" -- for "my IRA." Treasury expects to have a pilot program working by the end of the year. The White House does not need congressional approval to start the program.

"We think this fills a space that, very importantly, we can do by our own authority," Treasury Secretary Jacob Lew told reporters Wednesday.

The plan is a response to a looming retirement crisis. Companies have largely abandoned traditional pensions, which provided workers with guaranteed incomes in old age. Social Security is under strain as baby boomers retire. Many Americans lost their jobs or saw their wages stagnate in recent years, leaving them less able to save for retirement.

Below, a closer look at how the new program works, why the White House says it's needed and whether experts think it will make much difference:

How would myRA work?
Households earning up to $191,000 a year could have money deducted from their paychecks and put into a retirement fund that pays the same variable interest rate as a retirement fund available to federal workers. Savers would contribute after-tax dollars into the accounts, starting with as little as $25. They could opt for contributions as low as $5 a paycheck.

Is this a safe investment?
The accounts would be backed by the U.S. government; the principal would be protected from loss. Savers can withdraw what they've contributed tax-free at any time. The plan is voluntary. Although the money would be deducted from workers' paychecks, employers won't have to administer the program or contribute to it. Savers could take the accounts with them when they change jobs and could roll the savings over into another private-sector retirement account at any time. "The people who would likely take advantage of this typically move from job to job often," says Lynn Dudley, senior vice president for retirement and international benefits policy at the American Benefits Council, which represents companies that provide benefit programs.

The accounts are governed by Roth IRA rules that limit annual contributions to $5,500 -- $6,500 for those 50 and older. When the balance reaches $15,000, the savings would be transferred to a private sector Roth IRA.

What problem is myRA designed to solve?
Americans aren't saving enough for retirement. Boston College's Center for Retirement Research estimates that 53% of Americans won't have enough money to maintain their lifestyle in retirement. The National Institute on Retirement Security puts the retirement savings shortfall at a staggering $6.8 trillion -- or higher. More than half of workers do not have retirement plans at work, the White House says. Obama's plan is designed to get workers into the habit of saving for retirement by giving them an easy-to-use option that protects their principal.

How much will myRA help Americans prepare themselves for retirement?
Retirement experts are underwhelmed. "It's just a start. It is by no means a solution on its own," says David Madland, a retirement expert at the Center for American Progress, a liberal think tank closely associated with the Obama administration. The program is voluntary for employers, too. And the Obama administration acknowledges that it doesn't yet have a commitment from any employers to offer the program.

Another problem: Most workers won't save adequately for retirement, many retirement experts say, unless they are automatically enrolled in savings programs and forced to opt out if they don't want to save. MyRa is completely voluntary. Others worry that savers can withdraw money freely. The possibility that savers will deplete the accounts before retirement makes MyRA a "woefully inadequate response to the retirement crisis," says Teresa Ghilarducci, a retirement specialist at the New School for Social Research in New York.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2014, at 6:24 PM, miteycasey wrote:

    What problem is myRA designed to solve?

    Exactly. People can take their post tax dollars and invest anyway they want right now.

    Oh wait. People are smart enough to save money so lets sign them up for the government savings plan.

    uggg

  • Report this Comment On January 30, 2014, at 8:53 AM, KombatKarl wrote:

    I only watched for about 10 minutes. I didn't see the need to sit for over an hour to listen to Obama rehash the same promises he's been promising the last 4 speeches. But this announcement did pop up in those 10 minutes. I rolled my eyes. What a joke. Voluntary post-tax dollar investment vehicles already exist. As was said, what exactly is this meant to solve?

  • Report this Comment On January 30, 2014, at 11:44 AM, Schneidku40 wrote:

    So......it's a government savings account. There's no obligation to keep the money in there.

    Oh, and bonus! At the same time, the feds are increasing demand for their t-bills! That just means the feds can spend more money!

  • Report this Comment On January 30, 2014, at 4:40 PM, akbuyme wrote:

    Does anyone else see this as another bait and switch, shell game by the Treasury Department?

    Let's get a bunch of money from people, promise to repay them at a later date, but in the meantime we can leverage it to pay off other debt and needs?

    Trusting the Treasury Department to keep their hands off your money sounds like a bad idea.

Add your comment.

DocumentId: 2815679, ~/Articles/ArticleHandler.aspx, 4/19/2014 3:37:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement