President Obama unveiled a new retirement account in his State of the Union address called the “MyRA.” He said it was part of his pledge to help financially strapped American households.
At first glance it’s fairly obvious why it may appeal to lower-income Americans. While most IRA trustees require a minimum of $1,000 to get started, the MyRA has a minimum of only $25. Unlike 401(k) accounts, it offers portability – meaning you can keep and carry this account with you, even if you move from one job to another.
Here’s the excerpt of this speech from the State of the Union:
Like any law, the devil’s in the details – and the MyRA is no different.
When someone contributes to a MyRA, they put in after-tax dollars, just like they would when contributing to a Roth IRA. These funds will be invested in the Government Securities Investment Fund, which has an annual average return the past three years of a meager 2.24%. Like most other investments that offer “safety and security,” it does so in exchange for lower returns.
Because the Federal Reserve has collapsed interest rates to near zero the past five years, this rate of return won’t keep pace with future inflation. Especially when the Federal Reserve is still engaged in Quantitative Easing (or money-printing on steroids).
That means owners of these accounts will lose wealth in real (inflation-adjusted) terms.
What’s the more devious part of this plan? To get more Americans to fund the trillion-dollar federal budget deficit – voluntarily for now, and possibly through forced funding (through nationalization of private pensions) in the not-too-distant future.
The federal government is desperate for money. Funds in 401(k) and IRA accounts are the low-hanging fruit that governments love to grab. Governments in Argentina, Hungary, and Poland have all “borrowed” money from private pensions in the past five years.
The question you have to ask yourself: Is the MyRA a “new and improved” way to save for retirement… or merely a kinder, gentler way to introduce nationalization of these accounts to the American public?
Remember, this proposal is from the same man who also said: “If you like your plan, you can keep your plan.”