OBAMA ANNOUNCES MyRA PROGRAM THAT REQUIRES NO CONGRESSIONAL APPROVAL
President Barack Obama announced this week that he would establish a program to help low-income earners save for retirement
But the new “starter” savings program — called “My Retirement Account” (myRa), for “my Individual Retirement Account” (IRA) — has left a few analysts skeptical.
“His proposal might do some good — not by helping workers, most of whom are unlikely to take advantage of it, but by spurring a discussion about how to fix a broken retirement system,” theBloomberg editorial board said.
Others are more apprehensive.
“It’s a trap. It will make your savings highly visible to the government, very vulnerable to future special taxes and it drives investments in the direction of financing the government with your savings, rather than the productive private sector,” the Economic Policy Journal said after the president unveiled the plan. “That’s what myRA is all about.”
The program is aimed at Americans who lack the start-up funds required for many commercial IRAs.
“Starting with as little as $25, savers are expected to invest a little each month in Treasury bonds and then convert the accounts into traditional IRAs once the savings grow,” the Associated Press reported. “The president said that he wants all workers to be automatically enrolled in IRAs unless they specifically opt out. Under one scenario, monthly paycheck deductions would be invested in bonds unless workers choose another option.”
WHAT THE HECK IS MyRA?
Barack Obama apparently proposes to reinvent the savings bond. Does anybody know why savings bonds went out of fashion? Because they are a terrible way to save money.
The president promised that his MyRA (once he figured out how to say it) would combine a non-trivial rate of return with zero risk. Given that real interest rates on zero-risk propositions are generally right around zero of late, the only plausible way to get that done is with a subsidy. This sounds like a terrible idea.
Unless you have about $500 million or so, zero-risk investments are generally a bad idea, because returns are proportional to risk. (If there’s no risk, what are they paying you for, other than time?) Almost everybody, and certainly young people entering the work force (if they should be so lucky!), is better off with some significant amount of risk in his retirement portfolio, a well-diversified, long-term savings program being the most reliable path to a comfortable retirement. A zero-risk/decent-return instrument is a perpetual-motion machine.