This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.theguardian.com/money/us-money-blog/2014/feb/02/retirement-savings-ira-myra-obama-wages

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
The problem with retirement savings: making enough money to save The problem with retirement savings: making enough money to save
(7 months later)
Americans don't have a problem saving for retirement. The real issue is that Americans aren't making enough money.Americans don't have a problem saving for retirement. The real issue is that Americans aren't making enough money.
“We’re not lacking plans. Too many people lack the income with which “We’re not lacking plans. Too many people lack the income with which to save,” says Lance Roberts, CEO and chief strategist at STA Wealth Management in Houston.
to save,” says Lance Roberts, CEO and chief strategist at STA Wealth Management in Houston.
That's why convincing Americans that they need to save more – much more – for their retirement requires more than just another savings vehicle like the White House's newly introduced MyRA plan.That's why convincing Americans that they need to save more – much more – for their retirement requires more than just another savings vehicle like the White House's newly introduced MyRA plan.
No wonder President No wonder President Barack Obama sounded the alarm bell on our collective retirement problem in his state of the union address. With pensions deader than the proverbial dodo, income growth flat-lining and Americans either unable or unwilling to take on more responsibility for their own retirement savings.
Barack Obama sounded the alarm bell on our collective retirement problem in his state of the union address. With But the president’s creation of an entirely new kind of retirement savings plan, dubbed MyRA, is not likely to solve the problem. It may, at most, spur debate.
pensions deader than the proverbial dodo, income growth flat-lining and It's at least something. MyRA – surprisingly hard to pronounce, so that even the president tripped over it – has been billed as a "starter plan" for Americans who can’t save enough to easily accumulate the minimum balance of $1,000 plus often required to open an IRA account with major asset management companies.
Americans either unable or unwilling to take on more responsibility for their With the MyRA plan, Obama "is trying to reach working people who today have no access to either a pension or a 401k,” says Vivian Cohn, a financial adviser with Highbridge Financial Group in Tarrytown, New York. “It's a way to get those people starting to save for retirement and anything that does that is a positive step."
own retirement savings. It’s a very, very tiny positive step. It offers a way for families to squirrel away small bits of spare cash – the upfront investment can be as little as $25, and the saver can opt for tiny deductions of $5 or so from his paycheck after that.
But Obama claimed that “MyRA guarantees a decent return with no risk of losing what you put in.”
the president’s creation of an entirely new kind of retirement savings plan, That's true … kinda sorta. That’s because MyRA funds will go straight into securities backed by the Treasury Department. That money is not likely to be lost. It's also not likely to make you a fortune. It's the kind of return that STA's Roberts calculates will come in at slightly above current money market funds, which are paying nearly nothing, and short-term Treasury bills, which are also not paying very much.
dubbed MyRA, is not likely to solve the problem. It may, at most, spur debate. I’m not convinced that that could be called a “decent” return. Certainly, it won’t even be enough to keep up with inflation. Even if the MyRAs convert some Americans to the virtues of saving, they won’t do much to help them with retirement expenses. Roberts’ own worry is that MyRA account holders will treat the new plans “as a kind of higher-yielding savings account to save for the new iPad”, since there are no penalties on early withdrawals, unlike other retirement accounts that protect your money with the financial equivalent of barbed wire.
It's at least something. MyRA – surprisingly hard to pronounce, so that even the president tripped over it – has been billed as a "starter There’s also no up-front tax deduction for the MyRA, and no employer matching when employees put in money. Cohn notes that even the idea of a small up-front tax deduction can motivate a reluctant saver to get moving; the employer match can be a major lure for many 401k plans. MyRA accounts (which after 30 years or $15,000, become Roth IRA accounts) instead offer tax-sheltered growth for contributions and tax-free payouts when you withdraw the money.
plan" for Americans who can’t save enough to easily accumulate the minimum balance of Politically speaking, the MyRA won’t create much controversy. Obama has proposed far more sweeping changes to find that they have gone nowhere. One was the automatic creation of IRAs by employers who don't offer retirement – an unfortunate loss, since it may make more real difference to the one-third of Americans without a 401k plan at work. It's even worse at small businesses: 92% of employers with fewer than 20 workers have no retirement savings plan.
$1,000 plus often required to open an IRA account with major asset management So what might solve the retirement problem? We can take only baby steps, but here are two good ones: making it more attractive for companies to offer 401k plans and convincing asset management companies to slash minimum contribution levels to IRA accounts.
companies. Chad Parks, CEO of The Online 401k, says the economics for employers aren’t as daunting as they seem. “A turnkey 401k can cost as little as $100 a month for the company and $4 a month per employee," Parks says.
With the MyRA plan, As the burden for providing for retirement has shifted from employer pensions to employee savings, wages have largely flat-lined, on an inflation-adjusted basis. Roberts automatically enrolls each of his 15 employees in his firm’s 401k plan. “But if they earn below $80,000 or $90,000, they opt out,” says Roberts. “They understand what they need to do, but they need every dollar they earn for their families today.”
Obama "is trying to reach working people who today have no access to
either a pension or a 401k,” says Vivian Cohn, a financial adviser with
Highbridge Financial Group in Tarrytown, New York. “It's a way to get those people
starting to save for retirement and anything that does that is a positive step."
It’s a very, very tiny positive step. It offers a way for families to
squirrel away small bits of spare cash – the upfront investment can be as little as
$25, and the saver can opt for tiny deductions of $5 or so from his paycheck
after that.
Obama claimed that “MyRA guarantees a decent return with no risk of losing what
you put in.”
That's true … kinda sorta. That’s because MyRA funds will go straight
into securities backed by the Treasury Department. That money is not likely to be lost. It's also not likely to make you a fortune. It's the kind of return that STA's Roberts calculates will come in at slightly above current money market funds, which are paying nearly nothing, and short-term Treasury bills, which are also not paying very much.
I’m not convinced that that could be called a “decent”
return. Certainly, it won’t even be enough to keep up with inflation. Even
if the MyRAs convert some Americans to the virtues of saving, they won’t do
much to help them with retirement expenses. Roberts’ own worry is that MyRA account holders will treat the new plans “as a kind of higher-yielding savings account to save for the new iPad”, since there are no penalties on early withdrawals, unlike other retirement accounts that protect your money with the financial equivalent of barbed wire.
There’s also no up-front tax deduction for the MyRA, and no employer matching when employees put in money. Cohn notes that even the idea of a small up-front tax deduction can motivate a reluctant saver to get moving; the employer match can be a major lure for many 401k plans. MyRA accounts
(which after 30 years or $15,000, become Roth
IRA accounts) instead offer tax-sheltered growth for contributions and
tax-free payouts when you withdraw the money.
Politically speaking, the MyRA won’t create much controversy. Obama has proposed far more sweeping changes to find that they have gone nowhere. One was the automatic creation
of IRAs by employers who don't offer retirement – an unfortunate loss, since it may make more real
difference to the one-third of Americans without a 401k plan at work. It's even worse at small businesses: 92% of employers with fewer than 20 workers have no retirement savings plan.
So what might solve the retirement problem? We can take only baby steps, but here are two good ones: making it more attractive for companies to offer
401k plans and convincing asset management companies to
slash minimum contribution levels to IRA accounts.
Chad Parks, CEO
of The Online 401k, says the economics for employers aren’t as daunting as
they seem. “A turnkey 401k can cost as little as $100 a month
for the company and $4 a month per employee," Parks says.
As the burden for providing for retirement has shifted
from employer pensions to employee savings, wages have largely flat-lined, on an
inflation-adjusted basis. Roberts automatically enrolls each of his 15
employees in his firm’s 401k plan. “But if they earn below $80,000 or
$90,000, they opt out,” says Roberts. “They
understand what they need to do, but they need every dollar they earn for their
families today.”