State of the Union

Who Is This Myra Lady and Why Does She Want My Money?

President Obama proposes a federally managed retirement program.

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Pictures of Greek ruins are what you get when you Google "Myra." Isn't that interesting?
Credit: voyageAnatolia.blogspot.com / Foter / CC BY-NC-SA

I spent the State of the Union Address high on the CVS generic version of NyQuil (not as part of Peter Suderman's drinking game, so it wasn't even fun). Most of the speech was a blur to me, other than a brief bit of rage when he described his murderous use of drones as "prudent."

Nestled into the seemingly neverending speech was the introduction of some lady named Myra. She was going to help Americans save money for retirement. Now that I'm off the drugs, I see that he is actually referring to a new federally operated savings program. Here's the text from the speech:

Let's do more to help Americans save for retirement. Today, most workers don't have a pension.  A Social Security check often isn't enough on its own.  And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401ks.  That's why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It's a new savings bond that encourages folks to build a nest egg.  MyRA guarantees a decent return with no risk of losing what you put in.  And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans.  Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can."

I am a middle-class American, and my bank is constantly asking me if I want to open up an Individual Retirement Account with them, so I'm a little skeptical that people aren't saving for retirement because they just don't have access.

There wasn't much information about this plan last night, but this morning Josh Barro at Business Insider offered an explainer. He says, "MyRA would be a program of small Roth IRAs with access to a special, safe investment that pays a little better than Treasury bills. Remember, a Roth IRA is a retirement account where you contribute after-tax earnings, and can then withdraw money in retirement without ever paying tax on your investment returns."

It does seem like a modest plan, compared to something like Iowa Sen. Tom Harkin's proposal to create a national retirement pension system (pdf).  

But this program will have costs. Barro calculates: "Essentially, instead of issuing short-term Treasury bills at almost no cost, the federal government will do a little bit of its borrowing through this G Fund-like security, paying an extra point or two of interest in the process. If you imagine a program at scale with 50 million accounts averaging $5,000 in balances, the cost to taxpayers would be $2.5 billion per year for every point of interest rate premium."

I'm not so much concerned about the costs so much as: one, the suggestion that the administration has no idea why people don't save money on their own (and still thinks that home-ownership for everybody is the way to go); and two, anything the government provides as a voluntary service has the potential to be made mandatory. It's easy to imagine this new government program put into place, and then in order to increase the "success" of the program, pushing for more and more sign-ups. It is very easy to imagine a future where anybody who doesn't have an government-recognized IRA or 401(k) plan being forced to participate in this program.