Many Americans have virtually nothing saved for their retirement. That is a fact. President Obama emphasized this point in his State of the Union speech and proposed a dramatic solution. He wants you to trust your retirement money to the government—so you can be protected.
One of the most important rules in investing is never invest in something you don’t understand. Just behind that is never invest in something just because some guy in a good suit tells you to. You work too hard to waste what you earn.
So let’s look at the president’s proposal and collect some more facts.
Fact one: The average savings for a 50-year-old American is a paltry $44,000—a little over a year’s worth of income for an average American. Fact two: 35 percent of those over 65 completely rely on Social Security. Fact three: 80 percent of Americans worry that they won’t have enough money for retirement—yet 36 percent of Americans are putting nothing away for the future.
Fact four: The above represents a huge problem.
Actually it’s a humongous problem considering that the Social Security trust fund is broke. It is now paying out more in benefits than is collected in taxes. This problem will get worse as the baby boomers continue to retire. Compounding this is that politicians have also spent all the surpluses accumulated over the years. So the lock-box is empty. And the government is now forced to cover shortfalls out of general revenue.
Taken together with Medicare and Medicaid, the government has promised tens of trillions of dollars it doesn’t have—and can’t hope to have—to future retirees.
So if you are one of those 65 percent of Americans looking to the government to provide you a retirement, face this uncomfortable fact: You are heading for a vastly different retirement than you think.
But if you fall into this category, President Obama says there is good news. He’s got your back—and he’s done it by supposedly finding the holy grail of investing—a risk-free return. “Let’s do more to help Americans save for retirement,” the president told the nation.
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 tomorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: myRA. It’s a—it’s a new savings bond that encourages folks to build a nest egg.
MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic ira on the job, so they can save at work just like everybody in this chamber can.
The president’s solution to the savings crisis: a myRA. He describes it as a risk-free investment that comes with a decent return. No risk—decent return? Why hasn’t someone thought of this before? Why has the government not offered this to poor Americans sooner?
Because that kind of investment doesn’t exist—anywhere, or ever! There is no such thing as a risk-free investment—and especially one that also comes with a “decent return.”
Where is the president getting this stuff?
Here is how the plan works. Anybody who makes less than $191,000 household income can contribute to the myRA. Contributions would be with after-tax money. Once in retirement, withdrawals are tax-free.
If that sounds a lot like a Roth ira, that’s because it is a lot like a Roth ira—something that is already available to folks who don’t have 401(k)s, and that the president is seemingly pretending to be oblivious to.
There is a big difference though. In a Roth ira, you can invest in virtually anything you want. You choose. With the president’s myRA, you only get one investment choice. What is it?
You guessed it! The only thing you can invest in is government bonds.
As the Daily Progress reports, “Never in the history of retirement planning have the choices offered to workers been more severely restricted or more inappropriate.”
You can’t make this stuff up. Yet it gets better.
The bonds in the myRA will be modeled on the government’s Thrift Savings Plan Government Securities Fund.
Guess how much the government fund returned in 2012? 1.47 percent. How about over the past three years? 5.92 percent.
This is the great investment the president is offering? This will solve the retirement crisis? That doesn’t even keep up with the rate of inflation. And what if interest rates start rising from their historic lows? Investors will get massacred.
For comparison purposes, the Total Bond Market Index appreciated 10.10 percent over the past three years. The Dow Jones Industrial Index went up 35 percent.
Then there is the fact that if it was a private company offering this plan to investors, it would be illegal! And whoever was sponsoring it would go to jail. But this is a government that is increasingly showing itself to be above the law, so it can apparently do whatever it wants.
The myRA violates multiple fiduciary standards required by the government’s own legislation.
Employee Retirement Income Security Act laws are designed to protect investors from plan managers who might use investor money for their own advantage. For example, investment administrators cannot use investors’ money to make loans to themselves or to businesses they are associated with. Yet this is exactly what the myRA does.
Additionally, a private company would have to identify potential conflicts of interest and both communicate and address them. President Obama did neither.
So why would the president of the United States promote such a terrible investment that would be illegal if anybody else offered it?
It gets down to this: America has largely fleeced the Chinese and Japanese for all it can, so now the government is turning to the last big pool of money left to keep it operating: retirement funds.
With the Federal Reserve saying it has to cut back its money printing, the U.S. government will soon need to come up with an additional $45 billion per month to pay its bills. For the past several years, the Federal Reserve covered the entire U.S. deficit with money printing. It allowed tough budget decisions to be postponed, but now, unless some other source of cheap money is found, a day of reckoning may be imminent.
Hence, the president knocks out two birds with one stone: Look good to voters and finance the deficit—without politically uncomfortable raising of taxes or spending cuts.
Sadly, in the end it is going to hurt most the group of people the president purports to be helping. The only people likely to invest in such a plan are the poor and middle class. That’s because many of the poor are uneducated, and the middle class is trusting.
But there may be an even bigger motive revealed by the myRA plan. And it gets back to the president’s ideology.
In 2010, the Wall Street Journal wrote an article about U.S. Deputy Treasury Secretary J. Mark Iwry, the man said to be behind the president’s myRA plan. The article described the government’s plan to make people save more by requiring companies to automatically deduct employee’s wages, without the employees approval, to put into an ira-like account.
That year, Iwry presided over a Treasury and Labor departments forum featuring “a line-up of left-wing activists” proposing ways to make people save more (National Seniors Council, Oct. 10, 2010).
One speaker from the American Federation of Labor and Congress of Industrial Organizations (afl-cio) argued for more government regulation over private retirement accounts and pushed for the establishment of government-sponsored annuities that would replace privately owned 401(k) plans.
Another speaker from the liberal Pension Rights Center, Rebecca Davis, testified that the government needs to get involved because 401(k) plans and iras are unfair to poor people. She demanded the Obama administration set up a government-sponsored program administered by the Pension Benefit Guarantee Corporation.
“These people want the government to require that ultimately all Americans buy these government annuities instead of saving or investing on their own,” says National Seniors Council National director Robert Crone. “The government could then take these trillions of dollars and redistribute it through this new national retirement system.”
The plan seems to be gaining traction.
On January 30, U.S. Senator Tom Harkin unveiled legislation to “rebuild the private pension system.” The slightly Orwellian-sounding Universal, Secure and Adaptable (USA) Retirement Funds Act of 2014 calls for employees to be automatically enrolled, paychecks to be automatically deducted, and the money managed under the direction of a board of independent trustees appointed by the government. As of now, employees will be “allowed” to opt out if they like. The plan generally follows what President Obama outlined in his FY2014 budget proposal.
Some people like Crone warn that this kind of legislation is just a step toward government nationalization of retirement accounts.
But the beauty of these plans being pushed by the administration is that there may be no need for outright confiscation—at least at first. If you control where the money is invested, what does it matter who ostensibly “owns” it?
It does make you wonder what the government’s true motives are though.
Neither the myRA, Harkin’s bill, or any other government proposal actually fixes the underlying problem. You can’t get something from nothing. Most Americans live paycheck to paycheck and are not investing enough for retirement—it is as simple as that. So unless people invest a lot more, how can the government, which is also broke, somehow magically turn those meager investments into “secure” retirements?
But if the government can get its fingers on the more than $18 trillion worth of retirement funds in America, it can insure its own ability to borrow more money by “investing” those retirement funds in “secure” government treasuries.
There is plenty of precedent. Argentina, Bolivia, Hungary, Portugal and Bulgaria each recently stole their people’s money to prop up their respective governments. Ireland used a big chunk of its state-run pension investments to bail out its banks. Poland confiscated half of its people’s retirement money to prop up the government. France too is fiddling with its pension system.
Of course each of these countries was or is teetering on the edge of economic collapse. But that is beside the point. Or is it?
So where is America headed? The president’s myRA plan—which does nothing to solve America’s savings problem, but uses retirement savings to prolong unsustainable government borrowing—tells you a lot. ▪