According to the National Institute on Retirement Security, forty-five percent of working-age households do not have any retirement account savings at all. Part of the problem is that many Americans lack access to pensions or employer sponsored 401K or 403b retirement plans.
Others can not afford to put hundreds of dollars every month into retirement savings. Some are confused by the complexities of available retirement plans.
Enter President Obama’s myRA, a potential solution to those who have found it difficult to save in the past.
The myRA, recently rolled out nationally, is designed to allow anyone with earned income to save, regardless of how much they make or whether or not their employer offers a retirement plan.
The best part of the program is its simplicity. You can enroll online and have contributions deducted from your paycheck, savings account, or checking account. When you switch jobs the savings plan stays with you. Furthermore, there is no cost to join and better yet, no fees.
Unlike most retirement savings plans, you can contribute as little as a few dollars every paycheck into the plan. Currently the maximum amount you may contribute is $5500 per year (or $6500 for those 50 and over). You can withdraw your contributions tax free before the age 59.5 without the penalties associated with most retirement accounts.
Here, however, is a crucial aspect of the myRA. Unlike the situation with traditional retirement accounts, your investments are guaranteed not to lose money.
This is because your money is invested in a United States Treasury backed Government Securities Investment Fund. It’s akin to purchasing a US savings bonds with your investment. Last year the fund offered a 2.31 percent return.
These returns may not match those of traditional IRAs or 401K plans, but again, you do not risk losing money. In addition, the returns beat those you might get by simply placing your money in a savings or checking account, which have returned on average less than 0.49% yearly.
So what are some of the drawbacks of a myRA? First, you can only enroll if you make less than $131,000 as a single person, or $193,000 as a couple. Furthermore, once your balance reaches $15,000 you must move your money to a traditional private sector retirement account.
Despite these disadvantages, the myRA remains a great option for those without a company sponsored retirement plan and those who may not currently have a lot of money to invest. More importantly, the myRA makes it easy for people to get in the habit of saving.
“One thing we know is when people start saving there’s a good chance they’ll continue, and the challenge is to get started in the first place, to create a habit of saving.” – Treasury Secretary Jacob Lew.
And getting in the habit of saving is the biggest retirement challenge of all.
To find out more about the myRA, visit myRA.gov.
BMWK, What savings plan is working for you and your family?