When it comes to retirement, Americans are in trouble.
Earlier this year, a report published by Employee Benefit Research Institute (EBRI) and Greenwald and Associates showed 28% of American workers have less than $1,000 in savings to put toward retirement and more than half have less than $25,000.
This comes at a time when more and more Americans are realizing our government’s Social Security fund may not be around to depend on as expected. It’s set to dry up just 22 years from today.
But our government, as always, thinks it has a solution to help those Americans rest easy at night — MyRA.
At the beginning of the month, MyRA became available to the masses — a new government-developed retirement account. It’s a concept presented in President Obama’s 2014 State of the Union, and we had hoped the savings plan wouldn’t come to fruition. At the time, we warned this was something you should avoid like the plague.
But, to our disbelief, the day has come that small businesses, low-income employees and naïve investors are participating in the program.
So, I’ll repeat: You must avoid MyRA like the plague.
There are many reasons for this, several of which were covered in our previous article about it. But what truly makes it a horrible retirement option is that it serves no purpose or benefit to us as Americans — just the government.
In short, MyRA is the worst retirement option ever.
MyRA: Beware of Smoke and Mirrors
The program is pitched as a principal-protected retirement option that invests solely in U.S. Treasurys. But its purpose for being developed was to bridge the gap between those who have retirement plans available through work and those who don’t.
There’s just one problem with this: Roth IRAs, which is what the MyRA is, already exist and can be funded with as little as a few hundred dollars.
So the gap that supposedly exists doesn’t really exist at all.
Sure, the MyRA is extremely easy to join and backed by the U.S. government — which doesn’t say much when you look at the extreme level of debt our government has. But it generates a paltry 3% return at best. Almost any other diversified mutual fund will generate substantially better returns over time.
Therefore, the MyRA doesn’t really serve a purpose at all, except for providing the government with buyers of its debt at a time when the largest buyer — the Federal Reserve — has stopped buying.
The most concerning problem to me, as I learned during my salesman days after college, is that it does nothing to address the real reason Americans aren’t saving for retirement — disposable income.
Take a look at this chart:
It shows us that disposable income has grown at a slower and slower rate since the early ‘80s. It even went negative in 2009 and 2013.
The Real Problem
As I sat down with many friends and family members to discuss the heart of their financial matters, I was able to look through bank statements, credit card accounts and savings accounts to determine a financial plan for them.
And the chart above explained their situations. The most common solution for saving extra money came down to going without something — not going out to eat once a week, removing a once-a-month date night or not allowing your kids to participate in as many extracurricular activities that were costly.
These are the kinds of decisions Americans are faced with to just begin setting money aside. When it comes to building an actual retirement account, other life issues come up — car maintenance, buying a new house, home repairs or unplanned medical bills.
That’s the real issue surrounding Americans’ retirement.
Individuals need to increase their disposable income to a point that it makes saving for retirement and building a savings account for emergency needs sustainable … and MyRA does nothing to address that.
MyRA merely addresses the concern of the government about who will further support its bloated balance sheet.
Well, it found some unfortunate takers — Americans.
Editor, Pure Income