The 2014 State of the Union Address by President Obama included a new retirement account called a MyRA account. This is a retirement account for employees who do not have access to 401(k) or other employer-sponsored retirement plans.
Unfortunately, this MyRA account only has one investment option, a fund of government bonds which earned only 1.89% last year. These bonds are earning low returns because the Federal Reserve has been keeping interest rates low for 5-years in trying to jump-start the economy. A tiny 1.9% return on your retirement funds is not high enough to keep up with inflation, let alone accumulate into a meaningful amount of money. In spite of the White House claim that there won’t be fees, the government bond G Fund, which is where your money will be placed, does have fees embedded within it.
The second problem with the low yield is that investors in these bonds are not being compensated for the risk that they are taking. According to the President, only your bond principal amount is “guaranteed” by the government. However, there are several fundamental reasons why U.S. federal government has already lost its top ranking of a AAA credit rating back in 2011. In addition, the last three countries that forced retirees to buy government bonds (Argentina, Hungary, and Poland), ended up taking some of the money or offering puny returns, or both.
In my opinion, the MyRA account is a very poor location for anyone’s money; basically, they are for the financially illiterate. Yes, it can take time for someone starting out, who is working part-time, to save up the $500 needed to open a regular brokerage account. However, many brokerages allow no-minimum Roth-IRA accounts if you commit to regular deposits. Retirement savings in a brokerage account of any type can vastly outgrow anyone’s MyRA account over any 5-10 year period.