MyRA – an Individual Retirement Account (IRA) for people without access to one-is the government’s way of encouraging saving.
After a pilot project, myRAs are now a reality. According to CNN, “The U.S. Treasury…says anyone who has direct deposit for their paycheck can sign up and start saving now.”
In this program, anyone with a household income below $191,000 a year can open a myRA. Employers don’t contribute; workers do. Minimum initial investments may be as low as $25, with additional contributions as low as $5, if they’re automatic payroll deductions. Savers will be able to contribute up to $5,500 a year.
The money in the myRA accounts will be invested solely in government savings bonds, backed by the U.S. government-account holders can never lose their initial investment. The accounts are expected to earn the same rate as the Thrift Savings Plan’s Government Securities Investment Fund that federal workers can access. The latest data available indicates its 10-year average annual return was 3.4% as of December 2013.
Otherwise, the account functions like a Roth IRA. In other words, you invest after-tax dollars, but when you withdraw the money in retirement (likely when your income is lower) it will be tax-free.
And you’ll have the option to switch to a private-sector Roth IRA at any time. Once your account balance reaches $15,000 or the account has been open for 30 years, it will automatically be rolled over to a private-sector Roth IRA, where the money can continue to grow tax-free.
Retirement brings freedom from many responsibilities, but it also comes with a set of responsibilities of its own, like the five outlined below:
- Learn to budget. It’s simple: Just figure out how much income you’ll obtain from Social Security, pensions, and other retirement savings, and estimate as closely as possible how much money you’ll spend. Ensure that the numbers are equal and revisit the budget frequently.
- Allocate your assets. You likely shifted your investment portfolio to focus on maximizing income as you approached retirement; once you retire this should become the number one goal of your portfolio. It’s not uncommon for your risk tolerance to diminish as you move into retirement.
- Don’t forget estate planning. Estate planning isn’t just for the wealthy; it simply refers to getting your estate in order so that transition, whenever it should happen, is easy. Ideally, you’ll have a will, a power of attorney, and a health care proxy. And you’ll keep current the beneficiaries listed on your financial accounts and insurance policies. Be sure to discuss your estate plans with your family so they understand your wishes and their responsibilities.
- Get advice. While people are in the workforce, earning and saving, they may not seek preretirement advice. But when you’re a retiree on a limited budget, this becomes essential. An experienced accountant, for example, can produce significant tax savings, and a financial advisor can help you time financial withdrawals from different accounts to minimize capital gains. Plus, you’ll need an attorney to draw up wills and powers of attorney.
- Develop a nonfinancial plan. With all the talk about financial planning, it’s easy to forget that a happy retirement is about much more. It’s important, both mentally and physically, for retirees to stay active and engaged. Plan ahead how you want to spend your time during your retirement.