DEAR MR. BERKO: What do you think of the new myRA, which was designed by the Treasury Department? There’s no cost, and employers automatically take money from our paychecks and send it to financial people in Washington. The government will pay professionals to invest myRA money in stocks and bonds. There’s no minimum balance, and I can invest as little as $5 at a time. There are no taxes on the money I deposit or on the gains when I take it out after age 60. I can invest up to $5,500 a year, though I can barely afford $300 a year. I can also take the money out anytime without paying an early-out penalty. – RE, Wilmington, N.C.
DEAR RE: Many call Washington, D.C., “Foggy Bottom,” which is defined in Urban Dictionary as a “sweaty, itchy a– (SIA) that accompanies walking around all day in the hot sun.” And myRA is the brainchild of the young, SIA, enthusiastic idealists who overpopulate the Obama administration and toot ganja weed. These spacey but honorable administration sycophants haven’t the “foggiest” idea how difficult it is for a family of four whose breadwinner earns $15 an hour to live on $32,000 before taxes and then save $41.66 a month for myRA. Though the intent is noble, this process, which is supposed to give incentive for Americans to save for their retirement, takes political credulity and stupidity to new heights. Jeepers creepers, no matter how you cut the cupcake, families that live on $15 an hour can’t afford to invest for the long-term future. Their problem is figuring out how to pay Visa, rent, utilities and monthly car payments, and investing $41.66 a month into an individual retirement account is light-years out of their orbit. Still, the administration’s white-shirted, freshly scrubbed, dreamy MBAs believe they can make silk purses from a sow’s ear.
The White House will soon “aggressively” encourage employers to offer the myRA program and will promote it like a Golconda. Employers don’t contribute to myRA, and employees’ contributions are voluntary; however, that may not be the case 10 years hence. Because myRA complements Social Security, Congress may make employer contributions mandatory. As it does with Social Security, Congress will, from time to time, increase mandatory myRA contributions to pay for previously approved benefits because Social Security is going broke. Sooner than eventually, myRA will segue into a Borg-like bureaucracy rivaling Social Security, employing thousands of federal workers – replete with thousands of pages of strangling rules and regulations. Though myRA will post your name on a ledger account, there’s little doubt that in a short time, the government will dump those contributions in the general fund and spend them. And just as with Social Security, you’ll get an IOU.
This won’t help the huge majority of Americans who lack the means to contribute or even those who can squeeze $40 or $50 a month. If at age 37 you started contributing $50 monthly, over 30 years you’d have deposited $18,000 of principal. And if those deposits earned 6 percent a year over 30 years, your myRA would be worth $48,500. But during the past 30 years, the dollar has depreciated by almost 50 percent. And in 30 years, when you’re 67, that $48,500 will probably purchase about half the goods and services it purchases today. So when you’re ready to withdraw that $48,500 in 2046, it probably will purchase about $25,000 worth of rent, food, transportation and utilities. And if you decide to live to 87, you’ll need to have accumulated 20 times that amount, or $970,000.
Washington’s SIA toadies don’t understand what they created. This myRA is OK for the middle-class folks or families earning over $60,000. Most of them will benefit because they can afford to contribute something. But the poor schnook earning $15 an hour is wearing cement boots and can’t do the IRA dance. These are the folks who are stuck in an earnings rut for life, as will be their children and their children’s children. They need help, not some new ducky, clunky, funky, useless IRA that will eventually be mismanaged by Congress.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.