MyRA, My Ass!

The federal government is now making available a new kind of savings account called myRA, which is a play on IRA, the individual retirement account.  It allows a person to have money deducted from his paycheck and deposited directly into a savings account.  The amount can be very small, and there are no fees.  The money is invested in United States Treasury securities, and no taxes have to be paid on the interest until it is withdrawn.  The original contributions, however, can be withdrawn without penalty.  When the maximum amount of $15,000 is reached, it will be rolled over into a Roth IRA.  All in all, it sounds pretty good.

But as you can no doubt tell from the title of this essay, I don’t like it.  Some people have voiced the objection that the return on the investment is piddling.  It is likely to keep you up with inflation, but there will be no real return of any significance, as opposed to investing in the stock market.  That worry is the least of my concerns.  In itself, there is nothing wrong with the myRA, notwithstanding the small return paid by the government securities.  In fact, for an individual with no savings, the myRA would be just fine even if it paid nothing in the way of interest.

There are three stages of investing.  In the beginning, what matters is not the return on your investment, but the fact that you are saving money at all.  You could just put the money in a sock and keep it in the drawer for all that it matters, because the interest on the first few thousand dollars is just not worth worrying about.  Later, as the amount of savings becomes substantial, the return on that money does become important.  There may even come a point where the return is greater than what you are able to contribute to your savings out of your paycheck.  Finally, there is the capital-preservation stage, where you have so much money that you no longer have to worry about saving any more or worry about getting a good return.  Your chief concern at that point is just making sure you don’t lose it.  The myRA is for people in the first stage, the savings stage, and so the objection about the paltry return is beside the point.

My objection to the myRA is not that it is bad for the individual that takes advantage of it.  Were I just starting out as a young man with no savings, I would probably open one myself.  My objection is what this represents ideologically.  To explain what I mean, I must start at the beginning.  I started working in the 1970s, around the time the IRA first became available.  Because I worked for a company with a profit sharing plan, the rules back then were such that I could not avail myself of this kind of account.  But when I lost that job in 1983, I rolled the money from the profit sharing account into an IRA.  At the time, the maximum contribution was $2,000 per year (about $4,800, adjusted for inflation), which I started making annually.  Because I was able to deduct the contribution from my taxes, the net result was that I contributed $1,700 and the government was contributing $300 (just over $700, adjusted for inflation).

I remember thinking at the time that while this was a good deal for me, it was wrongheaded as public policy.  Anyone who could save that much money every year did not need help from the federal government.  The people the government should be helping are the ones who are so poor they cannot put any money aside, because they can just barely make ends meet.  The $300 the government was giving me each year should have gone to the needy.  Of course, with an IRA, the taxes are only deferred and must eventually be paid when the money is withdrawn.  But now that I am retired, the first $12,000 I withdraw each year from that IRA is excluded from taxes thanks to the exemption and the standard deduction.  After that, I pay at the lowest tax bracket.  In short, I end up paying a lot less in taxes than I would have had I never opened an IRA.

By coincidence, 1983 is the same year the Greenspan Commission issued its recommendations for Social Security, which consisted of an increase in the payroll tax and an increase in the retirement age.  This really brought my objection to the IRA into focus.  I was all for the tax increase, but I didn’t like the increase in the retirement age.  I would have preferred that the retirement age be kept the same and the payroll tax increased even more.  In other words, instead of the government giving people like me a $300 tax subsidy, it should have put the $300 into the Social Security Trust Fund (I know the $300 would have been counted as general revenue, but it could have been diverted into the Social Security Trust Fund through adjustments in the tax code).

According to the government, “myRA® is designed to make saving for retirement easy for people who need it most – workers who don’t have access to a retirement savings plan at their job or lack other options to save.”  No, they are not the ones who need it most.  It is the people who are so poor they cannot save that “need it most,” not the ones that are well off enough to be able to set money aside.  And so, my objection tomyRA is the same as my objection to the IRA (my objection to 401k plans is similar but more complicated, because these plans encourage contributions from employers, which is a good thing).

But this is only half my objection.  Some people cannot save because they are too poor.  Other people cannot save because they are deficient in character.  These are the people that could set money aside in a myRA or even an IRA or 401k plan, but will not do so because they are profligate, spending all they earn and even borrowing so they can spend more.  They are the grasshopper in the well-known fable by Aesop of “The Ant and the Grasshopper.”

Now, on the one hand, people who fail to save because they lack the virtues of thrift and industry will often plead hard luck, attempting to place themselves amongst those that have not saved money through no fault of their own.  On the other hand, many people, conservatives especially, are prone to do just the opposite, to regard the people that cannot help being penniless as being where they are as the result of bad choices made of their own free will, and therefore getting what they deserve.

As important as this distinction may be from a moral point of view, we need to protect people from poverty in their old age in either case.  Regardless of whether someone fails to save as the result of circumstances beyond his control, or because he carelessly squanders his money with no thought of providing for his future, he needs the protection of the state.  That is why no voluntary savings program provided by the government can be a substitute for a program like Social Security, in which the savings are mandatory, cannot be withdrawn at will, and cannot be borrowed against.  People that lack the character to save will either not avail themselves of amyRA in the first place, or will participate in the plan for a while, but then take the money out as soon as a few thousand dollars accumulates and blow it on some frivolous expenditure.

Conservatives like these voluntary savings vehicles because they are essentially a way to reduce taxes, whereas the only way to maintain the Social Security benefit far into the future would be through a tax increase.  Rather than increase the payroll tax or lift the cap on that tax, conservatives prefer to cut the Social Security benefit by raising the retirement age again, reducing the cost of living adjustment, means testing the program, or even privatizing it.  The general refrain is that people of a certain age, say, fifty years or older, will not be affected.  Those under the age of fifty will then have time to adjust their plans for retirement, presumably by saving more.  For example, the Trustees Report for Social Security for 2015 says, “The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.”

But such thinking is either terribly naïve or willfully cynical.  The only adjustment that can be made by people too poor to save will be to resign themselves to even more poverty in the years ahead.  As for those lacking in character, they will not change their ways.  You could tell them when they reach the age of eighteen that there will be no Social Security at all when they get old, and they would still not save a dime.

People who have good jobs and can save their money, who are frugal by nature, and who are blessed with a modest amount of good luck can take full advantage of all these tax deferred savings plans, of which myRA is the latest variation.  But anyone lacking in money or character either cannot or will not save no matter how many of these plans the government comes up with.  This business about people having “time to adjust” is not realistic.  It is just a convenient assumption to ease the conscience of conservatives as they make plans to cut back on entitlements.

All these voluntary savings vehicles are of benefit only to those who really don’t need them, while being of no benefit to those who are likely to having nothing saved for their old age.  In other words, the myRA may appear to be a harmless way to encourage people to save, but it is ultimately the expression of an ideology of individual responsibility, one that says, “If you don’t use this plan to save your money, then you have only yourself to blame when you end up in poverty in your old age.”  The revenue the government forgoes in subsidizing the ants should instead be put into the Social Security system that protects the grasshoppers against their own worst instincts.

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