With much fanfare, On November 9th, 2015, the Secretary of the US Treasury, Jacob Lew, officially rolled out a new government-sponsored retirement plan for workers that are not offered a retirement plan at their work. With the expressed purpose of “making savings more appealing,” the government is launching a savings plan called myRA that can only be invested in government-backed US savings bonds, which offer an average yield of about 2% annually.
With as little as a $5 contribution per week, Secretary Lew touts that a high school graduate would have over $21,000 saved by the time they reach retirement age. As the account grows, it can later be transferred into a Roth IRA. Further, Lew states that “Our goal is to make sure that every American is not only encouraged to save, but has the tools they need to create a financially secure retirement.”
While the desire to encourage saving is a laudable national objective, will these myRA accounts will stimulate any significant change in long-term behavior?
Let’s take a look…
First, $5 per week in savings is probably not going to result in a significant difference in someone’s retirement lifestyle. While $21,000 sounds like a large sum, if the past 45 years were any indication, the future purchase value would be reduced to $3,424.
Secondly, the yields are pathetic. While a 2% yield may be attractive compared to a local checking account or bank CD, many investors would recognize that at that rate, it would take 36 years for a deposit to double in value. At a 10% yield, money doubles in just over 7 years.
A much better solution would be for the worker to directly open a self-directed Roth IRA account using a weekly or monthly ACH transfer from their checking account to fund the new IRA. The same tax benefits would apply, but the opportunities would be much greater. For those times that contributions can be increased or need to be decreased, it can be done with a couple of key strokes on the banking platform.
But most importantly, the types of investments that can be made with self-directed IRAs can offer far greater returns within the risk tolerance of the IRA holder. Other than life insurance and collectibles, almost every type of investment can be purchased and held in a self-directed IRA as long as the transaction is done at an arm’s length from the account holder and does not benefit certain parties. These investments include real estate of almost every type, lending, partnerships, business start-up, and much more. Even small IRAs can be invested into many offerings.
Whether you are just starting your investment journey, or want to gain total control over your current IRA, 401K, or other retirement savings, check into a self-directed IRA. Secretary Lew wants people to create a financially secure retirement, and so does NuView IRA, but just with a few more tools than myRA will permit.
