Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Prepare for When the New MyRA Becomes "TheirRA"

Personal_Finance / Pensions & Retirement Feb 10, 2014 - 02:47 PM GMT

By: Money_Morning

Personal_Finance

Peter Krauth writes: In his recent State of the Union Address, President Obama unveiled something new: a retirement savings account to "help" Americans build a nest egg, coining it the "MyRA."

Something immediately felt wrong about the proposal... but I couldn't put my finger on it.

So I researched the new MyRA and found details to help you understand just how it works.


But I also saw some potential dangers there that you need to prepare for now...

What MyRA Really Means

Like most government programs, getting to their essence can take some sifting. So I've distilled here what I think are the principal components of MyRA.

  • Individuals earning up to $129,000 and couples earning up to $191,000 are eligible if their employers offer the account;
  • The minimum initial contribution is $25, then at least $5 through payroll deductions;
  • The maximum contribution is $5,500 per year ($6,500 if over 50 years of age);
  • Once the balance reaches $15,000 or has existed 30 years, it must be rolled into a Roth IRA;
  • Total contributions to a person's IRAs cannot exceed $5,500 annually;
  • Like a Roth IRA, withdrawals will grow and be redeemable tax-free;
  • Principal can be redeemed any time, but earnings withdrawn before age 59 ½ are taxable and subject to 10% penalty; and
  • Only one investment available: Treasury bonds paying variable interest-rate return

MyRA Is Set to Lose the Inflation Battle

Essentially, the MyRA is like a Roth IRA that your employer opens for you, allowing for low individual contribution requirements.

But if that's what you want, you can already set up your own Roth IRA with a no-fee, no-minimum account requirement at discount brokers like TD Ameritrade or E*Trade. And then your investment options are practically limitless.

In his speech, Obama said that "MyRA guarantees a decent return with no risk of losing what you put in." So let's look at the underlying investment a little more closely.

Your MyRA contributions would go into a variable interest rate bond investment, comparable to the Government Securities Fund in the Thrift Savings Plan (TSP) for federal employees.

That fund's recently been paying 2.5%, which admittedly is way better than the 1% you can get from the highest yielding savings accounts. And that looks OK, until you consider... inflation.

Right now official U.S. inflation has been 1.5% through the 12 months ended December 2013. If instead we look at a truer inflation rate, like the more realistic one calculated by ShadowStats, the emerging picture is altogether different.

Shadowstats finds inflation running at 5%, rather than the more benign "official" 1.5%. At 5% inflation, MyRA investors will be losing 2.5% annually.

With interest rates near all-time historic lows, odds are rates will go higher, not lower. And as interest rates rise, the MyRA could find it increasingly challenging to offer an attractive return to investors.

You've Just Become the Government's New Lender

It's no secret that the United States is running out of buyers for its bonds.

China, the largest foreign owner, has been reducing its purchases and has repeatedly said it has enough. Nations worldwide engaged in their own quantitative easing are busy buying their own bonds. Now, the Fed itself has begun the tapering process.

As the U.S. debt and deficits continue to balloon, the government is desperate for a new source of funding. Obama's proposed MyRA looks to Americans to buy up its "junk bonds."

In fact, new demand for bonds is so badly needed, it's easy to see how the MyRA could eventually move from voluntary to mandatory.

Account holders would automatically contribute through payroll deductions, funding the government's IOUs. And those won't pay out for decades until retirement.

This sounds a lot like another government scheme from which Americans can't opt out: Social Security.

Eventually, the need to fund a mushrooming debt could lead to compulsory government bond buying in retirement accounts. At first, it might be 10% to 20% of all new contributions, then perhaps 10% to 20% of existing balances. With over $5 trillion in U.S. retirement accounts, it's easy to see how a mandate for 20% (or more) directed into Treasuries will help extend and pretend.

Consider that Japan's debt to GDP ratio is 140%, already way above the 100% level considered problematic. This is possible in large part because so much of the national debt is held by its own citizens rather than foreigners.

So it's not a huge stretch to imagine America heading down the same path.

Eventually, retirement accounts could even be at risk of partial or even outright confiscation as debt levels become increasingly unsustainable. A desperate government will look to take desperate actions.

If you think I'm exaggerating, consider what's happened elsewhere.

In just the last five years, there have been government confiscations of retirement assets in no fewer than six countries, including Argentina and Poland, as I alluded to in a November article.

In that piece, I said:

Back in January 2010, Bloomberg BusinessWeek reported, "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged."

Then in February this year, the Washington Times reported: "Consumer Financial Protection Bureau director Richard Cordray recently mentioned these [401(k)] accounts in a recent interview, stating 'That's one of the things we've been exploring and are interested in, in terms of whether and what authority we have.'"

As follow-up, I mentioned that the International Monetary Fund (IMF) was considering the potential of a "'capital levy' - a one-off tax on private wealth - as an exceptional measure to restore debt sustainability."

And if you think this could never happen in the good ol' U.S. of A., consider that back in 1933, President Roosevelt seized privately held gold by signing into law Executive Order 6102.

FDR's official motive was to "provide relief in the existing national emergency in banking, and for other purposes." Desperate times, desperate measures.

The Best Way to Keep Your Retirement Yours

What can you possibly do to protect yourself? Here's where thinking "outside the box" is vital.

The alternatives are simple, but they do require some effort and planning.

There are updates to some key points I've alluded to in the past: there are three basic things to do, and they apply equally to both good and bad times.

  • Own and invest in hard assets like gold, silver, energy, and real estate. You can buy physical precious metals; you can buy physically backed ETFs; you can own quality resource equities, including your own home; and you can own income-producing properties and land. Assets in non-retirement accounts are more difficult to expropriate.
  • Hold plenty of cash. Cash is king, despite the risks of inflation. Hold it as a bank balance, but watch FDIC deposit insurance limits, and consider diversifying into other currencies. Be sure, however, to hold some physical cash as well, as this could be crucial during a "bank holiday."
  • Hold assets internationally. This is largely the same as in owning hard assets, as above, but in another country. Consider opening a foreign bank account. It's not easy for Americans - thanks to FATCA - but holding something outside your country of residence makes it tougher for a desperate government to grab.

Remember, as government debt grows to even more unmanageable levels, and interest rates cause most government income to service the debt, they will become increasingly desperate.

Sidestep the trap.

Don't let your MyRA become Uncle Sam's.

Source : http://moneymorning.com/2014/02/10/prepare-now-new-myra-becomes-theirra/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a finan

cial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014