Have you ever had the feeling that saving for retirement isn’t possible for you? If you are working or have worked for a company that doesn’t have a benefits package, you may be likely to say yes. Well, in a response those who struggle with getting the savings ball rolling, the U. S. Department of the Treasury has unveiled a system, quaintly titled MyRA, or My Retirement Account. It’s designed with people in mind who may feel intimidated by the thought of regularly contributing to a retirement account.
As a retirement planner in the Newport Beach area, I’m always looking for new possibilities for clients. The question this current blog poses is whether MyRA accounts actually open up possibilities that were previously unavailable to individuals who need more guidance. Here are some of the specifics about the account[1]:
A few benefits:
- No costs or fees
- You can actually withdraw the money if you ever feel the need to (minus interest earned)
- Flexible contributions, from a few dollars per month up to the standard IRA maximum of $5,500 per year
A few limitations:
- Account balance is capped at $15,000 dollars, at which point the account should be rolled into a private account.
- Same rate of return as investments in the government securities fund for federal employees, which has an average of 3.19%, over the past decade
As you can see from the details, MyRAs are not, nor were they ever designed to be a substitute for an employee-sponsored 401(k) plan—they’re not even in the same ballpark.
MyRA was designed to be a stepping stone. The way the plan is described, “simple, safe affordable” suggests that the target audience is people who aren’t able (or at least feel like they aren’t able) to utilize other retirement products the market offers.
I fully recognize that the MyRA system may make those who feel overwhelmed by other standard investment options more comfortable, and thus more willing to contribute. However, it may be useful looking into other IRAs before making the leap. MyRA’s biggest disadvantage is the lack of options. While this may seem like a good thing if you’re looking for simplicity, most people will be able to find many more IRA options that fit their needs, and that offer a bit of advantage over the guaranteed, but underwhelming, returns the MyRA account offers you.
If I can offer a word of encouragement to the retirement planning community, in Newport Beach and beyond, it’s that even if your employer doesn’t offer a plan, you do have options. As I mentioned, the MyRA account requires you to move on after saving $15,000. A retirement planner is helpful in the process, but even with just a little research and planning on your part, you may find that the MyRA system is a stepping stone you’re strong enough to jump right over and on to the next level.
[1] All figures from https://myra.gov, 11.16.2015