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myRA and Missing the Point

President Obama's first salvo on at least working on American's retirement problem is being met with a decent grade for "effort" but little else. 

The myRA concept, that employers would offer a non-matching, guaranteed government bond fund as a retirement vehicle, is at it's least, an effort to stem a growing problem: too many American's retire without enough money to live their lives out in any reasonable level of comfort.  In a recent study, EBRI found that the average 401k balance at the end of 2012 was only about $63,000.

Unlike 401k plans that benefit from automatic enrollment, the myRA plan would not provide for automatic enrollment, raising the question as to whether or not the myRA concept would gain any traction at all with American workers. 


A recent article on the Internet, chides the plan, noting that historical returns on the government bond fund to be used to fund the myRA have been historically low. In 2012 the fund returned just 1.47% and it's ten year average return was only 3.61%

But the article goes on to allow us to glimpse the real problem: Corporations are more interested in slashing benefit costs as means to increase profits, not increasing those costs. So, it's unlikely that adoption would be wide spread. 

So here again, we have a problem that's sorely out of focus.  And, frankly, on it's face, it appears that it's a classic "makers" vs. "takers" view.  It doesn't earn enough to be attractive, as if lower paid workers are going to be checking Baron's every week to see how their government retirement fund compared to the S&P 500 and; that having any amount of money set aside at retirement that normally wouldn't have been there is a waste of time if that number can't be 7 figures long, all on the left side of the decimal point. 

My guess would be that if you offered every struggling American newly retired household today, $23,000 tax free that they'd all take it, no?

So while the plan may in many views fail on it's merit and structure, one fact remains. It starts a national conversation about the need for the U.S. to have some sort of "mandated" retirement system.  In and of itself, that's a good thing. 

Are there other things we could do?  Sure.  Want a list? Then read on.

  • Put in place a post retirement tax bracket for low wage earners of 5%. The Tax Equity and Fiscal Responsibility Act which passed in the 1980's transitioned us from about 14 tax brackets to 3.  In case no one noticed, almost all American's will retire in exactly the same bracket they were in when they were working which kinda defeats the concept of retirement plans in general
  • Make it mandatory for employers to provide ongoing employee education on retirement planning and savings
  • Make it easier for financial advisors who are designated by law as fiduciaries to provide financial planning and wealth management services to employers for employees as a deductible corporate benefit
  • Make investment advisor and/or wealth management fees a normal itemized deduction not subject to limitation by Adjusted Gross Income for tax payers below a certain income level. Better yet, make it a tax credit for most and an itemized deduction for the rest
  • If earnings are your concern, have the U.S. Government enter into strategic alliances with firms like Vanguard, or iShares to offer an adjust investment plan using low cost index or ETF investments with pre-built portfolios to accept not less than and not more than 30% of all myRA contributions

Are there other things we could do? Sure, but it would seem that education about the issue would be the most helpful. Oh, and for those who on one hand are arguing about raising the minimum wage, let's be clear....if there's a lack of participation, it'll be because the participant doesn't think that they can afford it.  Raising the minimum wage should solve two problems then.