Forward Guidance: The End of myRA - and Better Ways to Start Investing for Retirement
On this week’s episode of Forward Guidance, we’re joined by Marc Lichtenfeld, the Chief Income Strategist of The Oxford Club and the Senior Editor of The Oxford Income Letter. We’re discussing the end of the myRA program - and more practical ways for low-income people to save and invest for retirement.
Marc explains that the myRA program was intended as a way to encourage low-earning workers to start saving for retirement. It operated much like a conventional IRA, but with no minimum balance. Unfortunately, it also offered enrollees only one investment option: a safe but low-yielding government security related to Treasury bonds.
Last month, the Trump administration announced that it was phasing out the myRA program. Marc feels that there’s good reason for that decision - the program never really took off. Only 30,000 myRAs were ever opened, and they had an average balance of just $500. Meanwhile, the program was costing the government about $10 million per year.
When I ask Marc his opinion of the program - and the recent decision to end it - he says that he has mixed feelings about it. He feels that myRA had good intentions, and he’s generally in favor of programs that encourage people to save and invest for retirement.
Nonetheless, Marc thinks that the lack of investment options for myRA enrollees was a serious flaw. He points out that with a 2.25% interest rate on government securities, myRA savers would have ended up losing money in inflation-adjusted terms over the long run. In his view, the program might have been viable if it had allowed for some kind of equity investment.
I then ask Marc about better ways for low-income workers to save and invest for retirement - particularly those who can’t afford the traditional $1,000 minimum to open an IRA.
Marc notes that not all IRAs require minimum balances - TD Ameritrade and E-Trade don’t, for example. He also recommends setting up an automatic deposit system in order to ensure consistent contributions.
Finally, for low-earning people who are just starting to save for retirement, Marc recommends a simple allocation approach based in index funds. He notes that stock picking may not be a practical way to manage a small retirement account, and that many low earners would be better off with something like an S&P 500 index fund.
For more common-sense investment advice from Marc, check out The Oxford Income Letter.
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