Is this the cure for America's retirement ills?
The U.S. Treasury loudly trumpeted the launch of myRA accounts earlier this week, which aim to provide a simple, safe, affordable savings option for workers who don't have access to a savings plan at work. Would a myRA make sense for you?
A myRA account could be a good idea if you answer "no" to all of the following questions:
- Are you eligible for a savings plan at work?
- Do you feel sufficiently confident about your ability to shop for an IRA at a financial institution?
- Do you feel confident in your ability to select investments?
- Would you take the time to set up an IRA on your own? (Workers who aren't eligible for a plan at work can always set up an IRA on their own.)
If you did answer "no," you're one of millions of American workers who need a simple way to get started on saving for retirement. With a myRA, you don't need to worry about being defrauded, paying high fees or watching your hard-earned savings decline due to the stock market. That's because your savings earn a set interest rate.
Treasury explains: "myRA accounts earn interest at the same variable rate as investments in the Government Securities Investment Fund in the Thrift Savings Plan for federal employees. This fund has had an average annual return of 3.19% over the ten-year period ending December 2014."
Here's a clincher: Do you have any retirement savings? If the answer is another "no," it means you better get started saving for your future.
On the other hand, a myRA probably doesn't make sense for you if:
- You are eligible to participate in a savings plan at work. It's highly likely you'll have better investment options in such a plan, and you'll be able to save more with one.
- You aren't eligible to participate in a plan at work, but you have the time and ability to shop for an IRA at a financial institution and select the appropriate investments. myRAs are designed to be very simple. Therefore, they don't provide the opportunity for investing in stocks or other investments that are available for IRAs. Over the long term, there's a good chance that carefully selected investments in an IRA will outperform the interest rate offered on myRAs.
The main criticisms of myRAs focus on the limited investment (just a government-backed interest-bearing account) and that you can't save sufficient amounts in a myRA to build up a comfortable retirement nest egg.
These criticisms, however, miss a basic point: myRAs are meant to encourage and engage people who aren't saving for retirement, and give them an easy, simple, safe way to start. In a few years, when they've saved modest amounts in their myRA and they're more engaged with saving for retirement, the goal is to migrate them to IRAs and savings plans at work.
Given the fact that millions of Americans don't have any retirement savings, myRAs are a step in the right direction.