Have you heard about the latest retirement savings tool introduced by President Barack Obama during his recent State of the Union address? It’s a federally sponsored retirement plan called the myRA (pronounced my-R-A), and it’s designed to help more Americans join the retirement savings race.
Since I’ll support nearly anything that gets people saving, you probably think I’m all fired up about this, right? Well, not exactly.
Don’t get me wrong — I don’t hate it, but I don’t love it either. I guess I’m just a bit underwhelmed. Sure, the myRA may be the starting block some people need to propel them to start saving for retirement, but I doubt it’s going to carry anyone to the retirement finish line all on its own.
To be fair, there are some positives. For instance, you could argue that the myRA has had an impact since the moment it was first mentioned. I’ve heard more talk about retirement savings recently than I have in a long time. Those conversations don’t mean much unless they eventually turn into action, but at least people are talking. Hopefully, the action will follow.
The myRA also voids a couple of common excuses for not saving for retirement. Gone will be the arguments that there’s no place to save small amounts of money or that fees will eat up those small savings amounts. The current plan is that myRAs can be opened with as little as $25 and funded with contributions as small as $5.
Ultimately, if a myRA gets you thinking about retirement or gets you to begin saving for it, I suppose those are good things.
But there are also negatives. The harsh reality is that a myRA alone won’t even get you close to being able to retire some day. It’s just not enough. For example, if someone puts away $50 per month for 20 years into one of these accounts, and it earns 2% per year (which is about right for how myRA money will be invested by the government), the would-be retiree will end up with slightly less than $15,000 for retirement. While that’s better than nothing, I haven’t met many people who could retire comfortably with such a small amount of money.
But the biggest shortcoming of the myRA is that it doesn’t fix what really stops people from accumulating money for retirement. Account features don’t stop people from saving for retirement. People either don’t have the money to save, don’t manage their money well or both. It’s more about financial literacy and basic money management skills than the availability (or features) of retirement accounts.
So, where does this leave us? I’m still on the fence on the myRA. It’s not going to carry anyone over the retirement savings finish line, but it could be a first step in that direction for millions of Americans. I hope so, anyway!
Mostly, it’s reminded me of the thing I always tell people about saving: “The hardest part is getting started.” MyRA or not, that part is still true.
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