If you don't have much money to devote to saving for retirement, the "myRA" plan that President Barack Obama announced in Tuesday night's State of the Union address could be the catalyst to get your retirement planning off the ground.
The president didn't offer many specifics, but he did say, "It's a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in."
MyRAs are expected to be similar to Roth IRAs, allowing initial investments as low as $25 and subsequent investments that could be as low as $5. If the plan offers an interest rate that is similar to the Thrift Savings Plan available to federal workers, it would have paid an average of 1.47 percent in 2012, the latest average rate published on the Thrift Savings Plan website. Once a myRA reaches a certain dollar level, a worker would be able to transfer the accumulated savings to a regular IRA.
Some critics have pooh-poohed the need for these accounts, but anyone who has tried to help a young adult set up a retirement savings account with a small amount of money knows that the current economic realities make that difficult. It is very hard to find an IRA savings plan that will accept an initial investment that is less than $1,000 without a commitment to regular payroll deductions. That leaves out people who are not on anyone's regular payroll. Plus, in today's low interest-rate environment, small savings accounts are likely to shrink rather than grow once even small fees are levied. If the myRA solves these problems, it could help lots of low-earning workers start saving for retirement.
Obama plans to encourage employers to offer myRAs, including handling payroll deductions for participants, but he's doing it by executive order rather than through a congressional vote, so it won't be a mandate that all employers must adopt. More information should be available later this week.
In the State of the Union speech, Obama also called on Congress to make changes to the current tax-advantaged retirement plans so that they do a better job of helping people save who aren't wealthy. "Work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans," Obama told members of Congress.
In particular, he urged Congress to authorize a plan that would "offer every American access to an automatic IRA on the job, so they can save at work, just like everyone in this chamber can."