Friday, January 31, 2014

Brother, can you spare $5 for an uncle $17 trillion in debt?

I am far from perfect -- ask anyone who knows me -- but have done nothing bad enough lately requiring penitence by watching the State of the Union Hot Air Festival. But it seems that our Little Caesar, sometime in the midst of his hour-plus monologue of vague promises to restart the heart of America did emit one specific proposal.

It's a sort of baby IRA plan cutely named MyRA.
“I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA,” Obama said in his 2014 State of the Union address. ["I will direct ... " is one of the Marxist savior's favorite phrases.] “It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”
You can't lose! You're a guaranteed winner! To wit:
Voluntary contributions. Contributions will be made via payroll deduction. The initial investment needs to be at least $25, but ongoing contributions can be as small as $5. Participants can save up to $15,000 or for a maximum of 30 years in this “starter” retirement account before they will need to transfer their balance to a private sector Roth IRA. Employers will not administer or contribute to these retirement accounts. ...

Principal protection. Unlike with Roth IRAs, MyRA participants will be protected from market losses and guaranteed that the account will never go down in value. The investment in the account will be backed by the U.S. government. ...
Income restrictions. The MyRA will be available to households earning up to $191,000 a year. The Treasury says the product will be targeted to Americans who currently lack access to workplace retirement accounts.
Simon Black of Sovereign Man says MyRA is the beginning of a campaign for the federales to take charge of Americans' retirement accounts: "The aim is simple – dupe unwitting Americans to plow their retirement savings into the US government’s shrinking coffers. We’ve been talking about this for years. I have personally written since 2009 that the US government would one day push US citizens into the ‘safety and security’ of US Treasuries."

Mr. Black is a somewhat excitable chap, so it is possible he's exaggerating. But MyRA will on no account lift the dread of a retirement without savings. 

First, contributions would be made by payroll deduction. But many, if not most, of those who "currently lack access to workplace retirement accounts" also lack access to a workplace. They are unemployed, albeit swelling with hope and change. Or they are part-timers with no benefits, including retirement accounts.

Second, even if a working person would like to save, even $50 (or $5 a month) is unaffordable to those in the worst economic shape, those who need retirement savings most. You can't invest money you need to survive till the next paycheck and keep the wheezy old car running. For those who can scrape up a modest sum to put by for their golden years, many ETFs and mutual funds allow IRA buy-ins for as little as $500.

As for being protected against market savagery, that may be technically true, but there doesn't seem to be any provision for indexing the principal to inflation. As Lance Roberts of STA Wealth Management writes, "If we assume that these accounts will offer the same variable interest-rate return as the Thrift Savings Plan Government Securities Investment Fund, that rate of return was 1.47% in 2012 while the rate of inflation, based on CPI, ticked up 2.08%."

Even if the beneficiary of MyRA can resist the temptation to pull money out, the dollars earned will continue to fall behind costs even in a relatively mild inflationary environment, let alone one of hyper-inflation.

There is no intermediary between the MyRA participant and the government. The plan may or may not be the thin end of the wedge for eventual government confiscation of everyone's retirement savings, but it would be a lot easier to pull off when some of the country's least solvent citizens deposit their first $15,000 in an unlocked box in Washington.

As Roberts cogently notes, "With 92.8 million individuals excluded from the work force, 1 in 3 Americans on some sort of Government assistance, stagnant wage growth over the last 5 years and 1 in 5 on food stamps, the issue is about employment rather than saving.  Solve the employment problem in America and the retirement savings dilemma will begin to resolve itself."

1 comment:

Stogie said...

Wow, now I understand what the MyRa is all about, and what a scam it is. I was puzzled about it but your post was like turning the light on: it's a new way for the government to borrow your dollars and pay you less than the inflation rate in interest. You are really losing money, or at least purchasing power. And, the scam can be segued into the Feds confiscating all retirement funds. Eventually, everyone will be dependent on the federal government.