MyRA plan has a major flaw
President Obama used his State of the Union Address to announce his implementation of “myRA”, a new retirement savings initiative for those who do not have access to a 401k plan or similar vehicle.
Assuming for the moment that he has the authority to go around Congress to pout it into place, it illustrates the tenets of “the road to hell is paved with good intentions” and “the devil is in the details”.
The plan would enable employees to invest tiny amounts, as little as $5 per pay, on an after-tax basis, similar to the Roth Individual Retirement Account, which was approved by Congress prior to its implementation in 1998.
The president’s plan places employee deductions into government instruments, which are currently paying a pittance in the current zero interest rate environment. One of the facets of the plan that he touts is that one’s investment will never decline in value. While this would be true, it will also be constrained from growing in value in the manner that an investment in a diversified stock mutual fund would allow.
An individual who invests over the long term for retirement must be invested in stocks in order to enjoy great appreciation in value of his or her investments and to help ensure that the investor will not outlive assets and making such investments over a period of decades bears little risk.
Most brokerage houses set minimum investment levels to open and maintain an account due to the cost of servicing them. The cost of administering small investment accounts will be staggering, more than the investor can pay out of his or her assets. Who will foot the bill for it?
One can be all for facilitating investing for retirement from an early age while recognizing that the president has proposed a deeply flawed manner to accomplish it. He should go back to the drawing board and consult with those who are knowledgeable in economics and finance before putting forth a half-baked solution to the crisis of those leaving the work force who do not have sufficient assets or income to retire in comfort.
Oren M. Spiegler
Upper Saint Clair