re: MyRA - Government Backed Retirement Savings Program

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Even if they use 30 year US Treasuries, the return will be low as it is 3.68% today.

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Obama's 'MyRA' retirement plans may have limited advantages
Published: Wednesday, 29 Jan 2014
By: John W. Schoen, CNBC.com Economics Reporter

As part of his pledge to help financially strapped American households, President Barack Obama will sign an executive order creating a new, simpler way to save for retirement. He dubbed it a "MyRA" account.

In his 2014 State of the Union speech, the president announced the plan "that encourages folks to build a nest egg" and "guarantees a decent return with no risk of losing what you put in."

The plans offer households with no retirement savings a place to start. But they come with some serious shortcomings compared to existing individual retirement accounts.
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Are these better than IRA and 401(k) accounts?

Not really. Technically, these plans are going to fall under the rules for a Roth IRA, which means you'll pay tax on your contributions before you deposit the money into your MyRA. That means you'll lose the tax advantage of a traditional IRA. The original idea behind those tax rules was to let you shield income from the IRS during your peak earning years and then pay tax when you withdraw the money in retirement, often at a lower rate because your income is lower. You won't get that tax break with a MyRA
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One of the main selling points, according to the White House, is that your principal would be preserved: "The account balance would never go down." But that's true for any saver who invests retirement savings into U.S. Treasurys. Like all bonds, you get all your money back if you hold onto it until it matures.

The problem with that strategy is that you'll give up a substantial return. Since the Federal Reserve collapsed interest rates to save the financial system five years ago, the return on a short-term Treasury bonds hasn't even kept up with inflation.

With a MyRa account, your money will be invested in the Government Securities Investment Fund available to federal workers. That fund has an average annual return for the past three years of 2.24 percent. As of December, the average annual inflation rate for consumer prices over the past three years was 2.07 percent.
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According to the White House, some two-thirds of tax benefits for retirement saving go to the top 20 percent of the income ladder, and one-third goes to the top 5 percent.

Obama wants to limit the tax benefits to those top earners to 28 percent of what they set aside. And he's proposing a cap on tax preferred savings accounts of $3.2 million, which the White House thinks is all anyone needs "to fund a reasonable pension in retirement."

LINK

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