He has done it. He has announced a retirement plan so abominable that it does not tell the suckers the central fact of the program: it’s not an IRA. It does not offer a tax break for investing. It’s a Roth IRA.
For people who can beat the markets, a ROTH IRA is preferable to an IRA. Real estate belongs in it. Why? Because the profits are tax-free. Why? Because you invest in a Roth IRA with after-tax money. (Of course, the Congress can change the rules at any time and tax Roth IRA profits. “Ha, ha! Gotcha!”)
But if you do not make major returns — above 10% a year — then a Roth IRA is a loser. You get no tax benefits at the front end, and you won’t have enough profits in the account at your retirement.
What would be the worst investment possible in a MyRA.|? Government debt — low paying bonds. What will all MyRA’s be invested in 100%. Government bonds.
For this to pay off, government bonds would have to pay at least 10%. They won’t, unless we get mass inflation or hyperinflation. But these last only a few years.
If we get mass inflation or hyperinflation, the value of the money paid by the bonds falls.
So, a MyRA is a perfect way to skin the rubes. It offers no benefits if ratess stay as they are now, and they offer losses in inflationary conditions.
In the meantime, the FED’s zero interest rate policy — ZIRP — destroys the retirement future anyone stupid enough to sign up for MyRA.
It’s a perfect plan from Obama’s point of view. So, he said this in his State of the Union address last January:
Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why … I will direct the Treasury to create a new way for working Americans to start their own retirement savings: myRA.
Come and get it, suckers! Uncle Barack and Uncle Sam have a surprise for you! Poverty in retirement! You get to fund it with your after-tax money!
In the promotions on the White House website, there is not one word about this being an after-tax program, unlike a conventional IRA. The main promotion is here. The backup promo is here.
It’s simple: Contributions as low as $5 can be made through easy-to-use payroll deductions. Savers can keep the same myRA when changing jobs, and can also roll the balance over to a private-sector retirement account at any time. Savers will also be able to withdraw their contributions tax free at any time.
Perfect! Sell an after-tax retirement fund that sits there like a marshmallow in front of a child. “Don’t touch it. I’m going to leave now. I’ll be back later.” That experiment has been run countless times. Two-thirds of the kids eat the marshmallow before the psychologist returns. The kids can get a 100% returns in about 15 minutes. Still, two-thirds of them eat the marshmallow.
Obama wants this at the core of his proposed retirement program.
Who gets the investors’ money? The Treasury Department. How fast will the Treasury spend it? A lot sooner than 15 minutes.
It’s a savings plan for people with little future-orientation that is run by politicians who are running a $500 billion annual deficit — the on-budget deficit. The off-budget deficit is vastly larger. The U.S. government is facing an off-budget deficit of $200 trillion in unfunded liabilities for Medicare and Social Security.
Will there be a Great Default by the government? Of course. Will the holders of Treasury IOU’s get stiffed? Of course.
All of this is done in the name of helping the little guy.
This is the basic rule in Washington. “You play ball with us, and we’ll smash you in the teeth with the bat.”
