During President Obama's State of the Union speech, he offered up a new kind of retirement account called "MyRA." While details are somewhat limited right now, here is what Obama said,
It's a new saving bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.
Obama is targeting about half of all American workers who are employed by companies that don't offer retirement plans. And even those who do save, don't save much.
The Positives of MyRA
- The MyRA will act much like a Roth IRA. Contributions are after tax. Earnings are tax free when you withdraw it.
- Affordability. This is specifically targeted at small investors. Minimum initial investment is $25 and subsequent investments can be as little as $5, through payroll deduction. A household with income below $191,000 a year is eligible.
- Portability. If you change jobs, you maintain the same account with the government.
- No cost to employers. Employers don't contribute to these plans, and there is no cost to offer the MyRA.
The Negative of MyRA
While you don't have any downside risk, the upside is very limited. Savers will earn a variable interest rate which is equivalent to the federal employees' Thrift Savings Plan Government Securities Fund.
While Obama states that you will earn a "decent return," the fund returned just 1.47% in 2012. In contrast, the S&P 500 returned 16%. With interest rates still near historic lows and the Fed committed to its zero interest rate policy, returns will be very low for the foreseeable future. The MyRA is likely attractive for the most conservative investors who don't want to take any risk.
What do you think of the MyRA plan? Would you invest?