Written by Hal M. Bundrick
NEW YORK (MainStreet) By executive order, President Barack Obama is directing the Treasury Department to launch a new retirement savings initiative. The plan, announced during the State of the Union address, took many financial advisors by surprise. "While the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s," Obama said. His answer: a retirement account called "MyRA."
A White House statement described the plan as "a simple, safe and affordable 'starter' retirement savings account, offered through a Roth IRA account and, like savings bonds, backed by the U.S. government."
"It's a new savings bond that encourages folks to build a nest egg," Obama explained. "MyRA guarantees a decent return with no risk of losing what you put in."
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A sampling of financial advisor reaction to the Obama's retirement savings proposal ranged from mild endorsement to raucous rejection.
"I think the President is on the right track with the idea of offering workers whose employer don't offer a retirement plans another option," Curtis Chambers, a financial planner in Clearwater, Fla. told MainStreet. "For years I have noticed one of the absolute best things that can happen to someone's financial situation is to have access to a 401(k) plan from an early age. Workers who do not have access to a 401(k) plan are missing out. So while I may not agree with all the details of the new proposals --such as the use of a government retirement bond as the initial savings vehicle -- I think this is a great idea being proposed by President Obama that could help many American workers."
But Michael Alexenko, a financial advisor in Saint Charles, Ill., is skeptical.
"Whenever Barack Obama talks about investing, we have to remain on guard," Alexenko says. "His proposal for a MyRA already can be accomplished by going to your local bank and opening an IRA account and depositing the money into a certificate of deposit. If a person does that, she does not risk the original principal and she can earn a small return from the interest income. The fees are negligible or even zero."
However, Alexenko wonders if Obama is preparing not only to guarantee principal, but to offer higher returns, as well.
"Maybe he wants to guarantee higher rates of returns than people can earn through bank deposits -- which would mean a government subsidy?" Alexenko said. "If that is the case, then what his proposal amounts to is solving a problem with a government program that has been created by a government program. Our current interest rates are low because of the Federal Reserve's actions. Those actions have suppressed rates while at the same time pumping up stock prices which has benefited investors with money. That inequality that Mr. Obama has helped to create will not be solved by letting someone earn a percentage point of interest on $500."
Another financial advisor was flatly unimpressed.
"A retirement plan for low-wage workers that invests in 1% Treasury bonds? Is this for real?" says Richard E. Reyes, a financial planner in Maitland, Fla. "We have various forms of retirement vehicles from IRAs to 401(k)s already. You can also invest as much as you like outside of these vehicles. Now you are adding another one?"
Reyes took his disgust with the plan even further.
"Food stamp rolls are exploding, in addition to folks on disability and other entitlement programs," said Reyes, the self-titled Financial Quarterback. "What does this 'genius' president think that can be contributed into these plans? If you are yelling and screaming because you can't make ends meet by flipping burgers and you have no ability to get a better job because the 'community organizer' has never had a real job or [doesn't] know how to create one, what in the hell are you going to contribute to this new retirement plan earning 1%? Will they be accepting contributions via EBT?"
--Written by Hal M. Bundrick for MainStreet