President Obama is directing the Treasury Department to develop starter savings accounts that are similar to Roth individual retirement accounts. These so-called MyRA accounts deserve a fair trial.
The accounts are intended for low-wage earners whose employers do not offer 401(k) plans, and who may not be able to afford the minimum amounts required to open standard retirement accounts. Since the President proposed MyRA accounts in his State of the Union message last week, critics have attacked the plan, saying the accounts’ projected growth rate is too low, that they do not offer access to the stock market, that they do not include an employer match, and that they merely represent a new way for the government to borrow money.
But for Americans with modest incomes, who lack access to other savings plans at work, MyRA accounts can enforce the value of delayed gratification, which is at the heart of every successful savings effort. And they will offer a comparatively painless way to do that.
The old-fashioned habit of saving has been sabotaged by the Great Recession and excessive marketing of credit. The U.S. Bureau of Economic Analysis reports that the nation’s personal savings rate decreased to 3.9 percent of disposable income in December, down from 4.3 percent in November.
That rate averaged 6.8 percent from 1959 to 2013, and reached a high of 14.6 percent in May, 1975. The Center for Retirement Research at Boston College says 53 percent of U.S. households are at risk of not saving enough money to maintain their living standards in retirement.
Under Mr. Obama’s proposal, MyRA accounts could be opened for as little as $25; employees could sign up for automatic payroll deductions of as little as $5 per payday. MyRA contributions would be taxed up front, so they could be withdrawn at any time, a spokesman for the Treasury Department said.
The Treasury will back MyRA accounts. Their balance is guaranteed never to go down, unlike retirement accounts linked to the stock market. They will earn interest at the same variable rate that federal employees get from their savings plan. That fund’s average annual returns, as of December, 2012, were 1.47 percent for one year, 2.24 percent for three years, and 2.69 percent for five years.
More details remain to be worked out, including the identity of the plan’s private administrator. But the MyRA idea deserves every opportunity to succeed.