The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: SecondHandCondom on October 27, 2014, 02:40:26 PM
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Has anyone done an in-depth analysis of this account?
http://money.usnews.com/money/blogs/planning-to-retire/2014/01/29/obama-creates-new-retirement-account-myra
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I read about it some when it first hit a few months ago. From what I gathered it might be useful for those who can not get the $1,000-$3,000 together needed to open a regular IRA. Not trying to be political, but I personally think we need LESS retirement account options.
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From what I read, real returns are NEGATIVE as the investment choice is none, none but gov't bonds lol. I hope this was just a failed lead balloon test, I haven't seen much lately since it was announced nearly a year ago.
If the gov't wanted to help people save instead of having poor people finance the gov't in this creative way, they'd just give them enough of a "credit" with any of the banks or brokerage houses offering IRAs/Roths to get started and an incentive to keep going. The incentive already exists in the savers credit, and people CAN spend their tax returns on opening up a retirement account instead of buying a car or going on a vacation. I guess consumption is too important for the economy for the gov't to dissuade people from these dumb choices though...
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The real news here is that this account gives everyone access to the TSP G fund (https://www.tsp.gov/investmentfunds/fundsheets/fundPerformance_G.shtml). The G fund is the one investment type in the federal employee's TSP that has not previously had any publicly available counterpart. He just opened the G fund up to everyone.
As previously discussed here, the G fund isn't terribly attractive to most ERE types.
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From CNN (http://money.cnn.com/2014/01/29/retirement/myra-accounts/index.html):
The White House said the accounts will earn the same rate as the Thrift Savings Plan's Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012, and had an average annual return of 3.6% between 2003 and 2012.
Which is negative real returns, as previously noted. It's better than plain savings accounts, and maybe CDs, but that's about it. On the plus side, it seems to be fully Federally insured.
I can see how this might be useful for young and/or low-wage workers, or those very scared of other investments. But the cynic in me thinks this really sounds like a sneaky way to keep government borrowing costs low.
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It has low returns, but that doesn't make it a bad idea. A risk-free roth IRA with low returns, essentially. I think they're going to try to make available to everyone who gets direct deposit the same type of "contributions automatically from your paycheck" you would get with a 401k. Add in a by-default enrollment of a couple %, and you get something useful - people save a little by default and the government gets more bond customers.
Is it terribly useful for us? Probably not. For the average american? Probably actually a nice little feature. Small things that help a little.
I was hoping you would be allowed to double dip IRAs but unfortunately not. Can't do both 5500 myra / 5500 elsewhere. That would have been a neat trick.
Negative real returns aren't as bad as even worse negative real returns from a savings account at a bank.