MyRA Proposal Is a Head-Scratcher
Jan. 30, 2014
One of the more puzzling proposals in the State of the Union address was the idea of MyRAs. Structured like a Roth IRA that invests in savings bonds, the federal government would guarantee these beginner investment accounts aimed at the poor. “It's a new savings bond that encourages folks to build a nest egg,” Barack Obama said. “MyRA guarantees a decent return with no risk of losing what you put in.” Naturally, he implemented the plan Wednesday with his infamous pen.
Given that there are already many retirement-account options out there, we're left wondering what problem Obama is trying to solve. And as National Review's Kevin Williamson notes, “Does anybody know why savings bonds went out of fashion? Because they are a terrible way to save money.” Low-risk, low-return. In fact, the federal workers' program this seems to be based on had a return of less than 1.5% last year and 2.24% over the last three. While the principal protection would keep the account balance from going down, the account could still lose value if inflation outpaces the return.
Given Obama's predisposal to nationalize everything, we question if this isn't the first step in doing so for retirement accounts. After all, just think about all the tax-free earnings sitting in IRAs that Obama wishes he could get his hands on. At a minimum, he seems to want poor, uninformed voters to invest more of their paychecks into the U.S. government. To the extent that MyRAs are used, that money will be invested in U.S. debt instead of private equity – at least until each account hits $15,000 and rolls into a private IRA.
We have another idea. How about privatizing (even partially) Social Security? That's what George W. Bush proposed in his post-re-election State of the Union. Unfortunately, the idea never went anywhere, and Social Security, with its multi-trillion dollar liabilities, remains unsustainable. In fact, the MyRA proposal is a tacit admission that Social Security isn't going to be enough for younger workers. According to the Employee Benefit Research Institute, that's exactly the case: Baby boomers and Generation Xers need $4.3 trillion more for retirement than Social Security and savings currently provide.