myRA, the retirement savings vehicle created by the Obama administration and announced during the President’s State of the Union address, has gotten a lot of blogger attention, most of it …unenthusiastic.
Perhaps that’s not entirely fair. Comments characterizing it as “a start, but won’t save retirement” are true so far as they go. But I think they may be missing what is most interesting about myRA: it shows a solid understanding of the behavioral barriers to saving. It is in effect, investor training wheels.
Learning to Ride
Riding a bike is easy – once you’ve actually learned how. When you are a child first learning how, your biggest barrier to success is fear of falling. Training wheels remove that fear and get you used to riding around. myRA does something similar. Consider how it directly addresses barriers to retirement savings for some people:
Fear: It’s expensive to start
It’s only $25 to open a myRA.
Fear: I don’t know who to trust
Investors can open one at work, without having to sort through competing claims from advisors or financial services firms.
Fear: Don’t I have to know a lot about investing?
There’s only one choice, based on US Treasury securities. Getting started is the point, not proving investment savvy.
Fear: I don’t want to lose money.
According to the Treasury, myRA accounts will deliver better than money market returns and no loss of principal. A modest return, but again, the point is overcoming a barrier.
Fear: I don’t want to be tied into something.
Since myRA investments are not tax deferred (they are funded with after tax money), there is no penalty for withdrawing the money. It’s available if it’s needed.
Once a myRA account reaches $15,000 (or is open for 30 years), the saver must roll over the money into another account, presumably an Individual Retirement Account. In other words, the training wheels have to come off.
myRA: Probably Not for You?
Since you are reading a retirement blog post, the odds are that you are comfortable with investing or at least with the idea of saving for retirement. myRA is probably not for you. But you may know people, friends or family, for whom myRA is a good way to get comfortable with the critical job of saving for retirement.
And if you think about the intelligent way myRA takes into account common fears expressed by non-savers, it may help you find ways to talk to and encourage friends who need help getting started.
For more information on myRA, visit the White House blog here
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.
BlackRock is not involved in the sale, management or administration of myRA accounts