MyRA is 'wrong way'

The president of the United States wants more Americans to save for retirement, but the MyRA savings plan outlined in his 2014 State of the Union address Tuesday night is all bang for few bucks.

President Obama proposed the creation of the "MyRA," a savings vehicle for Americans who are not offered 401(k)s at work. Individuals would contribute up to $15,000 to an account designed to perform like a U.S. Treasury bond, according to the president it will be guaranteed not to lose principal and will offer modest returns. At its heart, this program creates a safe way for workers to save more money and make a little interest insulated from the larger fluctuations of the stock market.

Americans need to save for retirement, on that we can all agree—but the MyRA is neither a smart nor necessary investment for those dollars. It sounds good on the surface, like the government is trying to help lower-income workers, but who's going to participate? There's no point to it. It's a useless deal. It's like putting a rug on top of carpet.

Americans today have several retirement options. They can contribute up to $17,500 in income before it is taxed to their company 401(k)s, often with corporations matching their contributions to some extent, into a set of funds selected by their employer. If their employment status doesn't afford them 401(k) opportunities, they can put up to $5,000 in dollars that have already been taxed in a Roth IRA, for tax-free investment gains. Self-employed individuals, such as contract workers, may put up to 25 percent of their income up to $49,000 into a SEP IRA.

President Obama's proposal creates a product for a person who doesn't make much, allows them to save more money than they will probably ever be able to afford, and gives them a guaranteed "competitive" rate of return that is as yet undefined. Let's just say the Social Security system can't quit its day job yet. To illustrate, the 10-year U.S. Treasury bond currently offers a 2.7 percent annual return, compared to the 8.5-to-9 percent returns an investor can expect from a stock index fund such as the S&P 500. It may theoretically be safer, but with the threats of inflation that exist when considering bonds these days, with MyRA the invested principal may be guaranteed, but even those steady low rates aren't secure.

Obama is right on one count: Americans should sock away more money for retirement. Counting on Social Security to foot the bill could be disastrous. A poorly considered savings plan isn't going to make the difference, however. If Americans want to secure their future, they need to seek sound, professional investment advice to help them within their means and create appropriate, thoughtful investment plans.

Aaron Freeman is President and CEO of Oak River Financial Group.