The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
where we stand The myRA program announced last week by President Obama is like training wheels on the bicycle of retirement planning. It provides safety, but its greatest benefit is promoting saving and investing as a habit.The United States leads the world in a world of economic categories. Saving money - especially for retirement - is not one of them.
Examine the Organization of Economic Cooperation and Development's list of countries where people save the most - figured as a percentage of disposable income - and you won't find the U.S. among the top 10.
How about gross savings as a percentage of gross domestic product? Nope. According to the World Bank, the U.S. doesn't crack the top 70.
Americans save less than 5 percent of their disposable income, about the same as Canada, Japan and the United Kingdom. While spending 95 percent of disposable income creates some positives - shopping at the mall does more for the national economy than socking it away - that is small consolation for many Americans when they are ready to retire.
The fact is they are not ready to retire.
This has been studied and researched time and again. For example, the Schwartz Center for Economic Policy Analysis, associated with The New School for Social Research, reported that, despite tax breaks and intensive marketing for 401(k) and IRA retirement accounts, Americans ages 50 to 64 will likely not have enough retirement assets to maintain their standard of living when they reach their mid-60s.
Not even close.
People with incomes above $52,201 per year have, on average, defined contribution retirement account balances of $105,000. What's that? Funds for two years of retirement - three or four with some scrimping? Lots of Americans have a balance of zero.
Americans cannot rely only on Social Security checks. They cannot rely only on their employers' pension or retirement programs (if any). They must complement those programs with their own savings and investments. The sooner they start, the better.
Getting more Americans into the habit of saving and investing is the goal of a new program President Obama announced last week during his State of the Union address. Even though he stumbled on its name, myRA - meaning My Retirement Account - his message is clear.
If a saving and retirement program were a bicycle, myRA could be compared to a single-speed model with training wheels. It's a low- investment, low-balance, low-risk program to help people get acquainted and comfortable with setting aside money for retirement. Participants, who can invest through payroll deduction, have no investment choices to make. The money is put into safe, low- interest securities. Participants won't earn a lot, but they won't lose money, either.
Once an account reaches $15,000, the money is to be rolled over to a regular retirement account (a bike with multiple gears and no training wheels).
There are a few other details to the myRA program, details that might not fit a bicycle analogy. However, the message behind the program is that the road to retirement is long, and success will come to those who start pedaling early in their working lives.
Let's hope that the myRA program helps more Americans get started.
Editorials reflect the consensus of the Telegraph Herald Editorial Board.