We are hearing a lot these days about myRA. So what is myRA? At the risk of oversimplifying, it is a government administered retirement plan very similar to a Roth IRA with a government savings bond as the only investment option. While myRA is certainly designed to be a ‘first step’ towards retirement savings, for most people serious about saving for retirement, we believe there are better avenues.
Here are the two primary pros and cons of the myRA, in our opinion:
- no minimum investment
- contributions can be funded from paycheck
- the ONLY investment option is a government savings bond which earned 2.31% in 2014
- the account stops earning interest when it reaches $15,000 and must be transferred to a Roth IRA
Our personal belief is that most private sector retirement plan options are significantly better avenues for retirement savings. Critically important here is that most people saving for retirement have a medium to long term investment time horizon to save. There are hundreds of investment vehicles in the private sector designed specifically for retirement savings. And most of these vehicles appropriately contain some allocation to stocks. Why might these vehicles be better options than the myRa? Compare the results of saving $10/week for 20 years and earning 2.31% (2014 myRA rate) to the same pattern of saving but earning 8.09%* (the average return for stocks over 20 years). The former produces $13,210, and the latter produces $25,946, almost TWICE as much retirement savings.
*the median return for stocks over rolling 20 year periods since 1871 per Jeremy Siegel, Stocks for the Long Run