Details have finally emerged on myRA, the new retirement savings vehicle that President Obama introduced in this week’s State of the Union address. While MyRA is billed as a retirement account, it’s actually closer to a government-sponsored, high-yield savings account. An account can be opened for as little as $25, regular contributions can be as low as $5, and funds can be withdrawn at any time before retirement without penalty.
The basic idea is that people sign up through their employer to fund their myRA account through payroll deductions — a selling point since, as Lydia DePillis says, “about a decade ago, researchers started to figure out that when people are automatically enrolled in a savings plan, participation shot up by as much as 20 percent”. Like a Roth IRA, it’s funded with post-tax dollars. Once the account reaches a maximum of $15,000, it has to be automatically rolled into a private IRA.
The account holds Treasury securities that earn the same interest rate as federal employees get on their retirement savings. That’s a low rate, but it’s higher than the yield on treasury bonds. “The language about the myRA being offered ‘through a familiar Roth IRA Account’ suggests to me that they're not so much proposing a new type of account as a new type of bond”, writes Matt Yglesias.
“It behooves us to collectively recall just how much money the federal government is already devoting to subsidizing private retirement accounts”, says Matt Bruening. He notes that between 2013 and 2017, government spending on subsidies toward retirement accounts -- which are overwhelmingly held by the wealthy -- will reach $700 billion. Josh Barro estimates myRA will cost taxpayers $2.5 billion per year for every point of interest rate premium.
Like other IRAs, myRA will be self-funded. That’s likely to be a challenge because the American savings rates are very closely tied to income: the less you make, the less you’re likely to save. That said, myRA, with its simple only-one-choice structure, eliminates the problem that Americans find it hard to effectively invest the money they aren’t saving enough of.
Kevin Drum’s solution, which echoes that of Josh Barro: increase Social Security’s benefits to the poor, and cut benefits to the well off. Not only is Social Security incredibly efficient, it’s the best poverty reduction program in America. -- Shane Ferro and Ben Walsh
On to today’s links:
Cephalopods
Goldman Sachs' investment in Dong Energy almost brings down the Danish government - Bloomberg
Profiles in capital
"Preying on the few people who still answer a landline": the new Wall Street chop shops - Bloomberg
Health Care
Americans don’t know what’s in Obamacare, do know they don’t like it - Sarah Kliff
Wonks
Thinking about labor market churn, via econobloggers' career choices - Ryan Avent
Don't assume Nobel Laureates know everything, or even many things - Chris House
Charts
The wealthy, and not-so-wealthy, American suburbs - Bloomberg Businessweek
Poetry
"Buy sell, buy sell / Work, work, work until you’re dead" - FT
Oxpeckers
"Defend yourselves against the media. It's attacking you all the time" - Rusty Foster
It’s Academic
Ban profs from blogging? "At best, it's draconian... at worst, an infringement of academic freedom" - Guardian
Ugh
Food stamps cut by $9 billion after Republicans win the farm bill fight - Mother Jones
Data Points
US GDP grows at annual rate of 3.2% in the 4th quarter - Calculated Risk
America is 7% poorer now than it expected to be in 2007 - Brad DeLong
Easing Ain’t Easy
Why the Fed should shift focus from the unemployment rate to inflation - Cardiff Garcia
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