The tragedy is not that the Trump administration will ditch the myRA retirement savings plan. It is that more people did not use it—a clear failing of the nation’s financial education system.
President Obama in 2014 announced the myRA, a tax-advantaged savings account for people without access to a 401(k) plan or another type of employer-sponsored program. Last week, Trump’s Treasury killed it.
The myRA wasn’t perfect. Lifetime savings were capped at $15,000 and all the money sat in accounts that held only low-yielding Treasury securities. Still, the government guaranteed against loss and the money grew tax-free. It was designed to entice low-income workers into saving something for retirement—and it should have worked.
The myRA was a great starter account, a risk-free way to experience things like automatic debit, tax-free gains and the satisfaction of seeing an account balance rise steadily. That experience, it was hoped, would lead people to roll their savings into an IRA once they got to the maximum balance and continue stashing away money for retirement.
But the myRA never gained traction. Since first offered in 2015 only 30,000 accounts were opened, and in 10,000 of those accounts participants never contributed a penny. The median account balance is just $500.
Treasury says the program so far has cost taxpayers $70 million and runs an annual tab of $10 million. It is too expensive to maintain for such meager participation—especially in light of the many private market options available. A Roth IRA does almost the same thing.
Why did the myRA fail? Probably for many reasons, including the drawbacks mentioned above and the simple fact that low-income workers have a hard time saving anywhere. But financial illiteracy plays a role.
Too many people don’t understand how to prepare financially for their later years. They don’t understand that Social Security won’t be enough and that they will live longer than they expect. They don’t understand how saving a little at a time and tax-advantaged growth adds up over many years. They don’t understand that it is on them to figure it out.
A handful of states require financial education and large businesses increasingly offer financial wellness programs. But millions of people fall through the cracks. If they didn’t, a program like myRA would have worked.