It's hardly perfect, but my RA is worth it
My oh myRA! The government is promoting thrift again. To the average working man or woman.
A new savings vehicle for the “little guy” is in the offing — President Obama's myRA, “my retirement account.”
It's not perfect but it's a start. And if employers go along, it should have a powerful thing going for it: payroll savings. The save-it-before-you-take-it-home advantage, secret weapon of sensible folks determined not to spend every dollar they make.
The president got myRA rolling with an executive order last week at U.S. Steel's Irvin Plant in West Mifflin. Steel coils ship out of there in huge tonnages, and workers in hardhats count on company pensions and Social Security for their golden years.
But are those sufficient anymore?
Life expectancy keeps stretching out. Social Security appears in need of rescue long-term. And “defined benefit” pensions are disappearing across the industrial landscape. “Defined contribution” plans are in, mainly the 401(k) typically invested in mutual funds. But not all workers are eligible for a 401(k) and millions more aren't interested.
Hence myRA. The Treasury Department still has to iron out the details. Congress also may take a hand. So myRA isn't really open for business yet.
The president outlined a savings system that can start with as little as $25 and grow as slowly as $5 a paycheck.
Deposits will have to be from after-tax money. But distributions down the road will be tax-free as in a Roth IRA. A worker who switches jobs can take his myRA with him.
But there are catches.
The new account is only open to households under $190,000 income.
And the money must go into one pot — the Thrift Savings Plan of the Government Securities Investment Fund, familiar to millions of federal workers. Last year the G Fund returned a mere 1.89 percent. From 2003 through 2012 its returns averaged 3.61 percent. Not exactly stellar. Standard & Poor's 500 stock index grew 16 percent last year.
But stocks can go down too, as they're proving in 2014, and myRA cannot lose principal, except as inflation cheapens its dollars, a vulnerability of savings instruments generally.
Another catch — or advantage, if you will — is that myRA money can be withdrawn any time without penalty. But if it's spent, it's not there for retirement.
Nobody will get rich this way. The Wall Street Journal quoted a Vanguard Group calculation that $50 saved from a paycheck every two weeks, at 1.5 percent average annual return, takes almost 11 years to grow to $15,000, at which point it would convert to an Individual Retirement Account (IRA) for hopefully better returns.
So myRA doesn't yet deserve three cheers. But it should focus working people on what the public schools absurdly have neglected to teach. That we've got to save something. All of us.