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 for future retirees, one that President Barack 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 non-savers 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, which is a good deal for savers.
Success depends on employers signing on. They 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.