Although complete details about the myRA's are fuzzy, it seems they would be backed by a government-backed security similar to a savings bond and those contributing to a myRA would be guaranteed that the value will not decrease. Contributions can be as low as $5 after an initial $25 contribution, funded by deductions from workers' paychecks. Lastly, myRA's would follow workers from job to job.
It sounds ever so "wunnerful," doesn't it? President Obama and the federal government really "care" about all of those lower- and middle- class "Joe and Josephine Six-Packs."
A quick analysis of the facts by MarketWatch indicates that the Presidents "myRA" plan isn't all that "wunnerful." Just perform a few simple calculations:
- The plans use the same variable-interest-rate return that the Government Securities Investment Fund ("G Fund") uses. Last year, the G Fund returned 1.47%. With inflation at 2.08%, the purchasing power of those who own G Funds declined. If one's myRA cannot produce returns above inflation, the plan is not a great savings tool, is it?
- myRA's are capped at $15k, requiring those who reach that ceiling to move to Roth IRAs. However, the cost is that they will then lose the plan's government-protected investment guarantee (if that's any guarantee these days).
- myRA's incentivize using them for immediate investment benefits, not long-term savings. Because the 1.47% payout returned by the G Fund is still better than most bank account returns, savers may decide to use their myRAs as alternatives to savings accounts. Since myRA's have no withdrawal penalties, individuals may decided to use the investment as a government-insured, emergency fund.
Today, 80% of Americans live paycheck to paycheck. How would they ever be able to invest any substantial amount into a myRA? Could it possibly that the scheme is aimed at the 19% of Americans who don't live paycheck to paycheck because myRA's aren't intended to benefit the 1%, could they be?
Actually, the President's pitch for myRA's is an election year scheme, one that's intended to dupe lower and middle income people into thinking that he's really on their side. Do the math and it's pretty clear the President thinks Joe and Josephine Sixpack are stupid.
Why so? The President won't allow health savings accounts based upon the same principle.
Let the discussion begin...
To read the MarketWatch article, click on the following link:
"The Trouble with Obama's myRA Plan."