In January 2015, our federal government launched the myRA retirement savings account. In essence, it had all the features of a Roth IRA in that deposits were after-tax contributions that grew tax-free.
The program was geared to first time, entry-level savers and allowed contributions as low as $5.00. It was designed so that when an account reached $15,000, it would have to be rolled over into a conventional or traditional IRA.
That wasn’t likely to happen as the only option for investors was the Treasury rate, which averaged around 2% since the launce of the myRA. The S&P 500, by comparison, returned 10.4% a year, with dividends reinvested. That’s roughly four times as much.
Uncle Sam hired Comerica to do the administration. Personally, I was skeptical of the program. A plan geared to first-time, low-income investors with a long-term investment time horizon, should provide investment options with an opportunity for significant growth over a lifetime.
Unfortunately, the one and only investment option the program offered was a US Government Bond Fund. At 2%, the upside potential was limited and hardly suited for long-term growth. As a financial advisor, it made little sense to me.
This year, the Treasury Department finally acknowledged that the program simply wasn’t working and shut it down. In just over two years, only 20,000 participated in the program.
Their cumulative contributions amounted to just $34 million. The government (taxpayers) spent $70 million to administer the program. In a nutshell, that’s why I’m so frustrated with what comes out of Washington.
The country doesn’t need additional investment programs. What we do need are improved financial education programs. Programs that teach everything from establishing a rainy day fund to saving for specific goals like buying a new house to long-term investing for retirement. And we already have a wide array of investment options that cover these and many other topics.
Over the years, I’ve helped a multitude of young people just entering the workforce, who asked me for help with the menu of investment choices in their retirement account. As a parent, I always enjoy helping simply because I think it’s important that young people get a proper start.
In my mind, helping young people is just one way of giving back. Unfortunately, with the new Department of Labor rules that went into effect in June, it looks like I’m prohibited from offering friendly, grandfatherly advice to those that seek it.
In the grand scheme of things, our nation is facing a retirement crisis brought on by a variety of reasons. The obvious one is that people are living longer. Nest eggs are stretched out for several more years because of longevity. This means people need to get on the right track at an early age.
That means disciplined and systematic saving and investing throughout one’s work career. It cannot be derailed by a bump in the road, which most of us have faced at some point in our lives.
There is no magic formula, but based on observations over my career, those that are financially comfortable in retirement began investing for growth early and stuck with it throughout the ups and downs in our economy.
More well-intentioned government programs are not the solution. Less red tape and more education are where the focus should be.
Fax your questions to Ken Morris at 248-952-1848 or e-mail to firstname.lastname@example.org. Ken is a registered representative of INVEST Financial, member FINRA, SIPC and is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. INVEST and Society for Lifetime Planning are independent companies
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