MyRA, a new government-backed retirement savings tool, makes saving for retirement a possibility for millions of American workers without access to a company-sponsored 401(k). The tool was initially tested at a handful of companies but became available nationwide last November.
Unlike most commercially-available IRAs, MyRA has no minimum deposit requirements and no fees. It’s designed for workers who wouldn’t be saving otherwise — the self-employed, the minimum wage-earners or the small business workers who often work without benefits.
Audrey Groce was one of MyRA’s earliest adopters. The 24-year-old grocery store manager had never considered saving for retirement before, not unlike many workers her age. Only about half of 20-somethings are saving for retirement, according to the latest data from the Employee Benefit Research Institute.
“I wasn’t thinking about what I was sacrificing by choosing a career path I was excited about instead of maybe getting a desk job where I knew I could have benefits,” says Groce, who lives in Washington, D.C. “Retirement seemed so far away.”
Her employer was one of the first small businesses to encourage workers to sign up for MyRA last winter. Groce was sold on the fact that she could contribute any amount she wanted from her paycheck. She settled on $50 per pay period to start with and eventually hiked it up to $75.
“I don’t even realize it’s missing, so that’s pretty nice,” she says.
MyRA’s key selling point — and also its biggest flaw, according to some retirement pros — is its simplicity. Instead of tasking savers with selecting from a large menu of different kinds of investments, they have just one option with MyRA. All contributions invested in a special U.S. Treasury bond created specifically for MyRA account holders. At around 2%, MyRA offers a far better return on investment than what savers would find at most retail banks today. The account are also 100% guaranteed, meaning they won’t lose any of the cash they contribute.
But, of course, the MyRA investment isn’t quite like the diversified retirement portfolio a professional would recommend, with a mix of stock and bond funds and cash. Investing in stocks, while risky, can lead to higher returns and help savers achieve the ultimate retirement goal: beating inflation. You’re far less likely to reach your retirement goal investing exclusively in low-yield bonds. You’ll have to invest in stocks at some point in order to generate enough income to sustain what will likely be a long retirement.
Richard Ludlow, executive director of the MyRA program, says the point of MyRA isn’t to teach novice savers how to put together a well-rounded retirement account. It’s about getting people who are saving absolutely nothing for retirement to save something — anything — at all.
“We saw so many people out there who actually were interested in saving but there are barriers,” Ludlow says. “It can be complicated to choose among different investment options.
There can be minimums or fees. With MyRA we try to break down those barriers.”
The Treasury Department would not share specific data on what types of workers are enrolling in MyRA. But Ludlow said it’s a fairly even split between all age groups, with a slightly higher rate of workers in their 30s.
Because MyRA is a Roth IRA, contribution limits are capped at $5,500 or $6,500 (for people over 55) per year. There are also income limits for individuals ($131,000) and couples ($193,000). Once savers have accumulated $15,000 or they have held the account for 30 years, they have to roll it over into a regular retirement account. Ludlow says the program will develop tools to help savers choose where to roll over their funds when the time comes.
Cat Jensen and Tom Simpson, coworkers at an Ann Arbor, Mich.-based. florist, say the thought of dealing with a rollover wasn’t enough to deter them from signing up for MyRA. They each contribute $50 per pay period. MyRA offers a tool that predicts how soon savers will hit the $15,000 benchmark based on their savings rate. They’re each 9 to 10 years off.
“To see the amount grow is exciting to me,” says Jensen, 27. “I have student loans I’m paying back, I have a car payment, cell phone payment. I never thought I could afford to save for retirement before.”
It’s not much but it’s a good starting point, says Simpson, 30. “I hadn’t thought about retirement before until I heard about this.”