In our current highly polarized political environment, it wasn’t likely that President Obama would propose much that both conservatives and liberals could agree upon. But about two-thirds of the way through last night’s State of the Union address, the President did hit upon something that everyone can agree on: Most Americans aren’t saving enough for retirement, especially low- and middle-income Americans.
And the President has an idea: A new kind of savings bond program that would be directed by the Treasury Department called a “MyRA.”
We’re eager to see the details of the President’s plan. Right now its main appeal seems to be that the President believes he can do it entirely through the Treasury Department and thus without Congressional action.
But the problem with inadequate retirement savings has little to do with a lack of options. Right now anyone who doesn’t qualify for a 401k or 403b can open an IRA account, can start with as little as $25, and can invest in safe, guaranteed instruments if that’s what they choose to do. It’s not clear how the President’s proposal would improve on that.
But there ARE real reasons why workers don’t take advantage of existing retirement savings options, and the president’s proposal doesn’t appear to deal with them. Many workers simply don’t think they have adequate income to support additional savings, and in the current lackluster economy, they’re probably right. It’s not a coincidence that the explosion of IRA and 401k options happened during a period of robust economic growth in the 1980s and 1990s. There’s no substitute for real economic growth.
Many other workers simply won’t save unless forced, which may offend our limited government sensibilities, but that bridge has already been crossed. Social Security is a forced savings program, but unfortunately all we get is the force—the contributions are spent, backed by only an off-budget promise to pay in the future.
But a compromise to address the retirement savings problem is tantalizingly close that would better accomplish the president’s intentions, and would present a rare opportunity for bipartisan consensus.
If the workers we’re trying to help are already enrolled in a forced saving program, but don’t have sufficient income to fund additional savings, let’s take that 2 percentage points of the Social Security payroll tax that we temporarily cut for 2011 and 2012 (but that was reinstated in 2013), and divert it into the MyRA. This would result in real, new retirement savings yet would not require any additional commitment of income by savers. The President can have his MyRA, and conservatives will get the Personal Retirement Accounts (PRAs) that we’ve been championing for 30 years.
It’s true that this proposal would marginally impact Social Security’s future stability, but all that would do is advance the day of reckoning a bit sooner. And might there not be some gain in having at least 2 percentage points of Social Security contributions going into real, transferrable government bond obligations, instead of into an unsecured promise by the federal government?
Such a MyRA would be a win for the President, a win for conservatives, and most especially a win for the American people.