At the beginning of 2014 in the State of the Union Address, President Barack Obama announced that a new way to encourage working Americans to save for retirement would be through the "myRA" (my retirement account) plan, Forbes reported.
President Obama cited the need for greater retirement savings after a study found 28 percent of U.S. citizens are not saving for retirement al all, the source reported.
"Today, most workers don't have a pension," President Obama said in an official statement. "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."
The myRA plan will simply work as a initial phase for workers who do not receive an employer-provided retirement income plan, the source reported. The new plan will also not replace Social Security benefits and will increase access to stock market returns.
The plans allow workers to switch jobs and not have to worry about changing their myRA plans, and only cost $25 to start, the source reported. Deductibles can be as low as $5 per paycheck and the U.S. Department of Treasury will support the plan with low-risk investment. People enrolled in the new plan will get an interest rate similar to Federal employees.
Plan aimed at helping lower income workers
According to CNN, the myRA plans are targeted toward low- and middle-income Americans, which account for 75 percent of part-time workers and almost half of all employees. Essentially, the new plan is supposed to work as a supplement to an existing 401(k) plan and can be used by workers with income that is lower than $191,000 per year.
"The good news is you don't have any risk on this account," said David John, a senior strategic policy adviser at the AARP Public Policy Institute, according to CNN. "The bad news is of course you're not going to have a huge amount of earnings on this account either."
The myRA plan gives employees the opportunity to use the plan as the safe investment portion of a retirement income portfolio, Forbes reported. According to a recent report from the Center for Responsible Lending, the average U.S. household only had $100 remaining each year after basic expenses and debt payments in 2010.
"This deals with the small saver problem," said John, according to CNN. "Very often the administrative costs of those tiny accounts actually eat into the principal."