WASHINGTON — President Barack Obama used his State of the Union speech to roll out a plan to coax low- and middle-income Americans into saving more for retirement.
New retirement accounts being set up by the Treasury Department would target workers whose employers don't offer retirement benefits or who haven't started saving yet for old age. The new “starter” savings program is called “myRA” for “my IRA.” Treasury expects to have a pilot program working by this year. The White House does not need congressional approval to start the program.
The plan is a response to a looming retirement crisis. Companies have largely abandoned traditional pensions, which provided workers with guaranteed incomes in old age. Social Security is under strain. Many Americans lost their jobs or saw their wages stagnate in recent years, leaving them less able to save for retirement.
Below, a closer look at how the new program works, why the White House says it's needed and whether experts think it will work:
Q: How would myRA work?
A: Households earning up to $191,000 a year could have money deducted from their paychecks and put into a retirement fund that pays the same variable interest rate as a retirement fund available to federal workers. Savers would contribute after-tax dollars, starting with as little as $25. They could opt for contributions as low as $5 a paycheck.
Q: Is this a safe investment?
A: The accounts would be backed by the U.S. government; the principal would be protected from loss. Savers can withdraw what they've contributed tax-free at any time. The plan is voluntary. Although the money would be deducted from workers' paychecks, employers won't have to administer the program or contribute to it. Savers could take the accounts with them when they change jobs and could roll the savings over into another private-sector retirement account at any time.