More than half of the nation’s private-sector workers have no pension of any kind, neither a traditional defined-benefit plan nor a retirement savings account. While Social Security provides a net, its $15,000 average annual benefit is meager.
That’s a crisis in the making, one that President Obama is taking a small step to address. He signed an executive order recently creating the MyRA, billed as a simple, safe and affordable starter retirement savings account for low- and moderate-income workers. These MyRA accounts top out at maximum savings of $15,000, at which point they must be rolled into a private retirement account. They’re a promising attempt to get nonsavers saving and focused on how to support themselves when their working years end.
Individuals who earn up to $129,000 a year, and couples who earn up to $191,000, are eligible for a MyRA. The opening investments can be as low as $25, and can be followed with contributions as little as $5 via payroll deductions. Savers can keep the same accounts when they change jobs and roll their balances into private-sector retirement accounts at any time. Contributions will be in after-tax dollars, and that principal will be protected.
Savers cannot lose their money. Treasury bonds are the only investment option, so the gains will be low, but they’ll be tax-free.
Employers won’t have to contribute to the accounts or administer them, but they will have to arrange payroll deductions, a key element of the plan. People whose contributions to retirement accounts are automatic tend to continue saving for the long haul, unlike those making voluntary deposits.
Saving is a good habit, and the nation will benefit if more people get hooked.