President Obama in his State of the Union address laid out a plan for “myRA,” a new government program that is, per the Treasury Department, “a simple, safe and affordable” retirement savings plan.
First, let’s be clear: Nothing rolled out by Uncle Sam is ever simple, and usually it’s not affordable. Google ObamaCare.
Second, isn’t this what Social Security is supposed to be for?
So what’s the point? With the Federal Reserve tapering quantitative easing, does Treasury need another pool of investors to buy its paper at next to no yield?
Treasury Secretary Jack Lew took out his pen and wrote an Op-Ed that described how this new “plan” will work. Based on that, these are my concerns.
For one, this is not a piece of legislation, and it was never put before Congress for a vote. It is being done via a presidential executive order.
Another worry is whether it will only yield about 1 percent, as is rumored.
If that turns out to be true, following the Rule of 72 (under which the expected return is divided by 72 to estimate how soon money doubles), it would take 72 years to double your money. This is not a good use of your cash.
True, Americans have been getting sub-1 percent interest on their savings for many years now — thanks to ex-Fed chief Ben Bernanke’s zero-interest rate policy — but they’re not suckers who will tie up money for 20 years at that rate.
MyRA also overlooks a fundamental problem with this economy: Americans are making nearly 10 percent less than they were four years ago.
So why would the administration expect people to open these accounts with a minimum of $25 and add in increments of $5 when many are living paycheck to paycheck?
If all they have is $25 or $50 to save, chances are that it’s earmarked to pay down 20 percent interest credit-card debt, or to meet minimum bank balances to avoid big fees.
At the kitchen table these days, most Americans are struggling with day-to-day finances, not planning their sunset years.