Obama Rolls Out New Retirement Plan. Will It Help People Save More?

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When you’re hanging onto your job for dear life, it’s tough to think about saving for retirement. And when we do save for it, experts have found we often don’t do it well. We’ve explained why your retirement won’t be like your parents’ and why you fret about your 401(k).

Well, now there may be some hope for workers seeking to build secure retirements.

President Obama on Wednesday signed an order directing the Treasury Department to create “government-backed retirement accounts,” according to CNNMoney.

The new MyRA program, announced by the president during Tuesday night’s State of the Union address, is aimed at low- and middle-income Americans who don’t have employer-sponsored retirement savings. “That includes roughly half of all workers and 75 percent of part-time workers,” CNNMoney says.

Overall, the plan seems to offer plenty of pros and few cons.

Reports USA Today:

  • It’s a savings bond that can be purchased with as little as $25.
  • The principal is guaranteed by the U.S. government, much like a savings bond.
  • It’s open to households earning up to $191,000 a year.
  • Participants may save up to $15,000 a year for up to 30 years.
  • Contributions can be as low as $5 through payroll deduction.
  • MyRA earns the same interest rate as the federal employees’ Thrift Savings Plan Government Securities Investment Fund, which earned 1.74 percent last year.

Now for a few things to note that aren’t really drawbacks but are more like caveats:

  • Like contributions to a Roth IRA, contributions to MyRA are not tax-deductible.
  • Contributions can be taken out tax-free at any time, that’s not true of interest. Says CNNMoney, “However, anyone who withdraws the interest they earned in the account before age 59 1/2 will get hit with taxes and a possible penalty, just like a Roth IRA.”

Still ready to sign up? You can’t do it yet and might not be able to for a while, depending on your employer. CNNMoney reports:

The White House says it will “aggressively” encourage employers to offer the program, noting that they won’t have to administer or contribute to the accounts. MyRAs will initially be offered through a pilot program to workers whose employers sign on by the end of the year.

There’s little question that retirement plans have changed through the years. MyRA may change things again, seemingly for the better.

Do you think this new program will help more Americans prepare for a secure retirement? Share your thoughts in the comments below or on our Facebook page.

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Comments & discussion

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  • Gina5009

    This new MyIRA program is just a Savings Bond program with all the restrictions of a Roth IRA. How much will this bond increase at 1.74% interest?? I bought War Bonds in the 1940″s thinking we would be able to live very comfortably on the savings in our retirement. Think again, Inflation ate up most of the earnings, and the change of interest every 10 years did the rest. At the time of retirement, any bonds cashed in were
    added to any income for that year. Bingo, the government once again had it’s hands in our pocket. This is just another way for the Government to have the use of your money long term without being any great benefit to the holder of the bon

  • Paul

    this wont move the needle. its a feel good item for a speech. What we need is personal finance education in our schools to better prepare students; better college counseling to help students avoid crazy (or any) student loans; personal finance adult education to educate the generation(s) that missed it in middle school and to help parents teach kids at a younger age; no more government guaranteed student loans which will force schools and lenders to have discipline in who they lend to and how much; better transparency and accountability for graduation rates and employment rates for colleges and degrees; etc etc etc. All this leads to improved financial knowledge and accountability which will lead to better preparedness down the road.
    Its really not rocket science. . . . . . you grandma understands it. . . . take a lesson.

  • Michael Smiley Gawthrop

    They earn 1.74% interest… umm, unless I am mistaken, the inflation rate has a historical average of 2%… I think my intro to finance class put it best, “any investment that earns less than inflation isn’t earning money, it is losing it safely.”

  • Ceepy

    I’m sorry, I don’t see any reason to use a MyRA account…why not just open a IRA in the first place.

    Will this end up like Social Security, years down the road? S.S. started out as a way to make people save as well…now we NEED a new law to make us save?

    Our government needs to get off of it’s duff and create jobs, bring our jobs back home, reduce our foreign debt and dependence. This will create a greater tax base, increase consumer sending, etc., etc., etc.

    Simple fix, simple math, simply done!

  • Marilyn Zack

    I wouldn’t trust O to tell me the date in a calendar factory. Talk is cheap but not O’s programs.

  • POTUS mime

    I’ve worked most of my adult life…averaging about 35 K per year. I added up all of my Social Security contributions, along with my employer’s contributions and calculated a 6% rate of return (slightly less than the stock market average) and guess what? If I had that money in MY OWN account, I would retire with almost a million dollars …enough to live comfortably. And, I would be able to control my own money and leave any leftovers to my heirs. Lesson? The government is stealing our money with the Social Security Ponzi scheme and now they want to do it again…uh….no thanks.