President Obama announced during his fifth State of the Union that he was directing the Department of the Treasury to create a new retirement option called “MyRA”.
It’s like “IRA” by “My”… get it? (I love when government officials try to come up with something catchy.)
I must say this is an intriguing product that I can see being really successful toward its end goal. Let’s look at it more closely.
What is MyRA?
MyRA is designed to get individuals who either don’t save anything for retirement or don’t save enough to begin setting aside funds for their golden years.
What Am I Investing In?
Your money goes into a Roth IRA with only one investment option. This means your investment is ruled by Roth IRA investment rules.
Your investment option? Government bonds.
Nice, safe, and backed by the United States government. These aren’t the sexiest investments around, but that’s okay. Remember the goal: getting people started investing rather than getting the largest growth percentages on those investments.
How Much Can I Invest?
Sine this falls under Roth IRA rules you are limited to investing $5,500 per year into MyRA.
Unfortunately you can’t contribute that amount indefinitely. Your account must transition into a private Roth IRA under one of two circumstances: 1. Your account balance grows to $15,000 or 2. You hold the account for 30 years. (Hopefully you haven’t invested for 30 years and not broken through the $15,000 barrier, but I suppose that is a possibility.)
You may also convert the account into a normal Roth IRA at any time that you want.
Savers can start with as little as $5 per payroll period. Again, the idea is to just get the habit of saving started. Removing the risk of loss in the portfolio plus making it easy to start with just a old fashioned Lincoln makes that transition easier.
How Does MyRA Compare to Other Options?
It’s no contest if you compare MyRA to a normal Roth IRA with all the investment options you could ever want. The “real” Roth IRA is significantly better for multiple reasons.
But that’s not the point here. Someone that is willing to pick an online brokerage firm, open an account, fund it with significant dollars, and pick specific investments is not the target audience of MyRA.
MyRA is for the 50% of workers without access to a retirement account at work. Or the 66% that admit they don’t save enough for retirement. Or the majority that relies on Social Security to be their nest egg.
It’s all about automation and habits. Start with $5 or $10 per pay period and wait a year. Notice a significant change in the account balance; bump contribution to $20. Reinforcing that good habit with the security in knowing the government bonds aren’t going to lose value. (Or if they do we will have economic pandemonium and a small account balance will be worthless anyways!)
I won’t personally be using MyRA as an investment choice, but I can see the logic behind it. Start with small amounts, insure the principal amount to get scared potential investors to invest, and build up the habit of saving. We’ll see if that is how it pans out long term, but I can see it being successful.