TIME swimming

Michael Phelps Will Compete Once Again

Michael Phelps comes out of retirement
Former U.S. Olympic swimmer Michael Phelps waves to the spectators during a 2013-2014 NBA preseason game between Los Angeles Lakers and Golden State Warriors at Mercedes-Benz Arena in Shanghai, Oct. 18, 2013. Eugene Hoshiko—AP

The 28-year-old Olympian, who retired from competitive swimming in 2012, will compete at an event in Mesa, Ariz. on April 24-26. His trainer said Phelps hasn't yet decided if he'll participate in the U.S. national championship

American Olympic swimmer Michael Phelps is coming out of retirement to compete for the first time since 2012’s London Olympic Games.

The 28-year-old Olympian who retired from competitive swimming in 2012 will compete at an event in Mesa, Ariz. on April 24-26.

“I think he’s just going to test the waters a little bit and see how it goes,” Phelp’s trainer, Bob Bowman, told the Associated Press. “I wouldn’t say it’s a full-fledged comeback.”

Bowman said Phelps hasn’t yet decided if he’ll compete in the U.S. national championship if he qualifies. Phelps, the most decorated athlete in Olympic history, has previously said he wouldn’t compete past age 30.

“He’s really doing this because he wants to — there’s no outside pressure at all,” Bowman said.

[AP]

TIME Retirement

The Staggering Statistic Threatening Your Retirement

Debt levels among those on the doorstep of retirement have risen by four times in two past two decades, yet another factor delaying retirement for many.

Better health and unprecedented longevity, coupled with inadequate savings and a tedious social safety net, have been the main drivers reshaping the retirement landscape the past decade or so. But rising personal debt later in life has played a pivotal role too, contributing mightily to the need for people to work longer.

More Americans between the ages of 56 and 61 are carrying more debt than anytime in recent history, according to a paper from the Retirement Research Center at University of Michigan. Traditionally, retirement has been a period without a mortgage and few debts. Large regular interest payments while on a fixed income can become a tremendous burden.

Citing rising indebtedness among those on the doorstep of retirement, the paper says pre-retirees “would be very likely to feel the burden of sizeable monthly debt repayments, and to carry debt into retirement.” For many this will include a mortgage, forcing ever-greater numbers of people to work in retirement—an oxymoron that will be with us for the foreseeable future.

Dozens of surveys show that vast numbers of people expect to work at least part-time well past the age of 65. Last fall, the Associated Press and NORC Center for Public Affairs Research at the University of Chicago found that 82% of working Americans 50 or older say it is likely or very likely that they will do some work for pay after leaving their career.

“The survey illuminates an important shift in Americans’ attitudes toward work, aging, and retirement,” Trevor Tompson, director of the center, said. “Retirement is not only coming later in life, it no longer represents a complete exit from the workforce.”

Much is made of our longer lives and how little we have saved. Men are living 11 years longer and women are living 12 years longer than just 40 years ago, requiring greater savings or guaranteed lifetime income. Yet nearly 40% of workers age 50 and older have saved less than $100,000, not including pensions or homes; and 24% have saved less than $10,000, the AP-NORC survey shows. The staggering debts we now carry into our 60s only compound the problem.

The Retirement Center looked at total debt, including mortgages and medical bills, of pre-retirees in 1992, 2002, and 2008. It found consistent growth both in the percentage of debt holders and the amount of debt. In 1992, 64% of pre-retirees held debt; by 2008 the figure had reached 71%. In 1992, the median amount of debt was $6,200; by 2008 the figure had more than quadrupled to $28,300—rising at eight times the rate of inflation.

Among the most indebted pre-retirees, average borrowing among the top 25% rose from $50,000 to $117,300. The top 10% of borrowers at this time of life now carry an average of nearly $260,000 of debt. Such sums typically cannot be wiped out quickly. Studies have shown that roughly half of people aged 65 to 74 are still making a mortgage payment while a third carry a credit card balance and a quarter have some kind of installment loan.

This debt takes a toll beyond pushing people to work longer. As early as age 60 people tend to start making poorer financial decisions, which result in higher fees and interest rates that add to their financial problems. All of this contributes to an epidemic of elders filing for bankruptcy: the filing rate of those past age 65 is the fastest-growing segment—jumping from 2% in 1991 to more than 6% in 2007.

Thankfully, working longer has many benefits that go beyond your pocketbook because you’re probably going to live a long time and no one is going to fix the fraying social safety net anytime soon. The thing we are most empowered to change—personal debt levels—is pushing us that way too.

 

TIME Retirement

Even More Proof Americans Think It’s a Great Time to Retire

Jonathan Kitchen—Getty Images

A new survey by the Employee Benefit Research Institute finds that 18 percent of Americans are "very confident" they'll live comfortably when they retire, up 5 percent from last year, thanks to planning like a 401(k) plan or IRA

The evidence keeps pouring in: last year’s torrid stock gains have revitalized the retirement dreams of many Americans. After five years of rock-bottom readings, new data show that confidence in a secure retirement has lifted for workers and retirees alike.

Among workers, 18% now say they are “very confident” they will live comfortably in retirement, up from 13% last year and similar readings each previous year since the recession, according to the 2014 Retirement Confidence Survey from the Employee Benefit Research Institute. Some 37% of workers are “somewhat confident”—also a post-recession high-water mark.

Among retirees, 28% now say they are very confident about maintaining their lifestyle, up from 18% last year; 39% say they are somewhat confident. For both workers and retirees, confidence remains short of peak levels reached before 2007. For example, 79% of retirees were very or somewhat confident about their future just before the crisis—a difference of 12 percentage points.

The reversal is heartening news and ads heft to recent reports showing that retirees, especially, are feeling better than they have in years. Fewer are postponing retirement and more say they believe the stock market will continue to rise and that interest rates will rise as well, providing a higher level of secure income.

But let’s not declare victory over hard times just yet. Two distinct sets of savers seem to be driving the gains in confidence: those with high household income and those who participate in a formal retirement plan like a 401(k) or IRA, EBRI found. This uneven advance may help explain why the percentage of the most forlorn workers and retirees–those saying they are “not at all confident” about retirement security–remains stuck at recession levels.

Nearly 50% of workers without a retirement plan are not at all confident about their financial security, compared with about 10% of those with a plan. Workers in a formal plan are more than twice as likely to be very confident (24%, vs. 9%) about retirement, EBRI found.

The biggest impediments to saving seem to be the high cost of day-to-day living and accumulated debt, the survey found. More than half of workers say daily expenses consume all their income. Meanwhile, only 3% of workers that describe debt as a major problem feel comfortable about retiring while 29% of those who have few debt issues say they are confident in their ability to retire comfortably. That’s hardly a surprise. But it drives home the importance of getting control of your debts before retiring.

TIME

Turns Out Now Is a Brilliant Time to Stop Working

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Cavan Images—Getty Images

Retirees are feeling better about their finances than they have in years. The rising stock market is one reason. But seniors also have a sense that interest rates will finally move higher and make income easier to secure.

Retirees are feeling more confident about their future than they have in years, new data show. Much of the optimism flows from last year’s heady stock market gains. But the prospect of higher bond yields, a popular source of income, is also part of the cheerier outlook.

Investors of all stripes are feeling more upbeat. A Wells Fargo and Gallup index measuring investor confidence jumped 48% in the first quarter, approaching levels last seen before the budget fiasco and partial government shutdown last summer. Most of the gain is attributed to a seven-fold surge in retiree confidence. Non-retiree optimism rose less than 10%.

Some 74% of retirees and pre-retirees say they feel positive or very positive about stocks, up from 62% a year ago, according to a survey by Ignites Retirement Research. Retirees in this survey also registered more optimism than those still at work.

The surge in hope follows a year in which the S&P 500 returned 32%, one of the best calendar-year gains in modern history. That gain repaired a lot of portfolio damage from the recession; it also lifted the spirits of retirees relying on dividend-paying stocks for income. It was the first reading of the Wells Fargo/Gallup index in nearly two years where retirees expressed more hope than non-retirees.

In another sign of retiree confidence, a study from CareerBuilder.com found that the percentage of seniors opting to postpone retirement is declining. Among workers 60 and older, 58% now say they will delay retirement—down from 61% who planned to delay retirement a year earlier. A greater percentage of workers also expect to retire within four years and a smaller percentage now say they will never be able to retire.

Some of the new optimism owes to the prospect of higher bond yields, pollsters say. Retirees have a growing feeling that interest rates will rise this year, and with that they will find it easier to secure income from short-term bonds, bank CDs, annuities and other fixed-income vehicles. That’s a surprising development because so far interest rates have not risen. In fact, after a short, sharp burst higher last spring rates have declined again, making income more difficult—not easier—to find.

One dollar of guaranteed retirement income at age 65, purchased today by someone who is 60, would cost $16.65, according BlackRock’s Cori index. That’s up from a cost of $15.50 for $1 of income last August. Put another way: Last August, $1 million would have secured $64,516 of annual income for a 60-year-old retiring in five years. Today, it secures just $$60,060 of annual income.

Interest rate moves are the biggest factor in this calculation. Retirees are putting a lot of faith in something that has yet to materialize. Still, as the Fed winds down its stimulus package and the economy continues to recover, counting on higher rates and easier income would seem to make sense.

TIME

The Real Debt Crisis We Aren’t Talking About

San Jose Is Wealthiest City In Nation
San Jose, California Justin Sullivan—Getty Images

I spent the day in San Jose, California yesterday, reporting on the city’s effort’s to come to grips with what Mayor Chuck Reed calls a “crisis” in the pension system that threatens the future of the town. At first sight, it seems strange that a town full of techies and which is home to companies like eBay and Adobe can’t afford to fill potholes or keep local libraries open full-time. But gold-plated city pensions are, according to the Mayor, the chief reason that this is the case. And the cut backs that are being made to afford them may actually result in greater economic bifurcation in the city, and higher tax rates for poor and middle class taxpayers, many of whom have little retirement savings themselves.

I’ll be blogging more about what’s happening on the ground in San Jose later in the week. But first, a bit of background on the real debt crisis in this country, the one that we haven’t talked about seriously yet, let alone come to terms with—the retirement crisis. The key stat you need to know: the median household retirement savings for all workers between the ages of 55 to 64 is $120,000. That works out to about $625 a month. A full one-third of the workforce aged 45 to 54 has saved nothing at all for retirement. At a time when social security benefits are being paired back, public pensions are being restructured en mass, and housing growth is flat (only the top 10 markets in the country are predicted to have any significant price increases in the next 15 years), this is a looming iceberg of a crisis.

Declining workforce participation numbers show how quickly the boomers are moving out of work, either by choice or force, and into a retirement in which more than half of them won’t match even 70 percent of their previous income levels. That has implications for everything from over U.S. consumption and GDP growth, to politics in the 2014 Congressional elections and the 2016 Presidential elections, in which boomers will increasingly face off against everyone else for a shrinking piece of the federal pie. (They will likely continue to fight necessary entitlement reform in large part because social security is the only thing most will have for retirement.)

The crisis can be split into two parts. First, the public pensions debacle, which involves only 10 percent of the American workforce, but has economic implications far beyond that, as pension entitlements tank entire cities, like Detroit. Second, there’s the private crisis—only 55 percent of private sector workers in America have access to any kind of formal savings plan, like a 401K. With large companies paring back benefits, and most job creation coming from small- and middle-sized companies that can’t or won’t offer such benefits, the stats will likely get worse in the next few years. California is in many ways ground zero for both the public and private portions of the crisis. Aside from Detroit, the largest public pension fights and biggest municipal bankruptcies have been in places like Stockton, Vallejo, and San Bernardino. Meanwhile, the state also has more retirees, young people without benefits, poor people, immigrants and small- or middle- sized companies than most states, meaning that it hits all the red buttons in terms of citizens who are most at risk in terms of retirement security.

Yet it’s also at the center of the most innovative new proposals about how to fix the crisis. San Jose Mayor Reed is pushing pension reform that would keep benefits that workers have earned but allow changes to benefits earned in the future, and force local politicians to raise a red flag if public pensions are at risk of being under-funded. (The failure to do that, and take responsibility early on, is a key reason many cities have gone bankrupt.)

Meanwhile, in the private sphere, Governor Jerry Brown signed the California Secure Choice Retirement Savings Program, developed by state senator Kevin de Leon, into law last year. This plan, which would be a state-run defined benefit program guaranteeing a minimum level of income for any private sector worker, will require everyone to put 3 percent of their income into a super conservative indexed fund. The idea would be to create a kind of substitute or add-on for social security. It’s getting huge push back from the financial industry (which doesn’t want to lose fees) as well as many conservative state politicians. But it’s already being copied in New York and Maryland. Illinois, Oregon, Washington, Connecticut and even Arizona are taking consultation on similar plans.

If successful, it would mark a sea change in the way we’ve thought about retirement, which everyone admits isn’t working. It would also mean a move back to a new kind of state-run program, very different from the huge entitlement systems of the past, but also different from the do-it-yourself, market knows best ethos of the 401K society that has left most people bereft. I will visit a variety of communities in California this week that reflect different aspects of the retirement crisis – look out for my blogs from San Jose, Stockton and L.A.

MONEY Investing

401(k) Advice Could Come At a Cost

Investing for retirement can be confusing, but your employer's 'free' 401(k) advice may come at a price.

Employer-sponsored retirement plans are getting better, but they’ve still got plenty of weak spots.

MONEY looked at six holes you might see in your 401(k) plan, and some fixes you can make to address them. Below, see another way your retirement plan might be letting you down — with handholding that isn’t free.

Leak No. 3: Plans are offering more advice but…

Companies understand that most Americans are confused about investing for retirement. Roughly half of large plans now offer access to some type of investment management, up from 11% in 2007, according to Hewitt. These services don’t simply tee up suggestions on what to do with your account. They pick funds for you and adjust your portfolio automatically.

Vanguard, one of the largest 401(k) providers — largely by improving participants’ stock and bond mix. In reality, though, there are no guarantees. Managed accounts in Vanguard’s plans returned just 1.9% a year on average between 2007 and 2012, vs. 2.3% for DIY participants.

Part of the problem: Handholding isn’t free. In some company plans these add-ons will cost as much as 1% or more of your assets a year, eliminating most or all of the potential advantage. The most popular providers, Financial Engines and Morningstar’s Retirement Manager program, charge about half that or less.

Still, those costs are on top of the investment fees you’re paying for the underlying funds, which could run you another half or full percentage point — dragging down your returns.

WHAT TO DO

In your thirties and forties: All the advice you may need is guidance on how much to save (answer: shoot for 15%) and a target-date fund, says Lori Lucas, defined-contribution practice leader at the investment consulting firm Callan.

Target-date funds — all-in-one portfolios that expose you to stocks and bonds and that automatically grow more conservative over time — are a form of professional management available in two-thirds of plans.

In your fifties and beyond: At this stage, you’ve accumulated a sizable sum and the idea of handing over investment decisions to a pro may not sound bad.

“This is especially true for near retirees,” says Lucas. “You are making some complex decisions that are both major and irreversible.”

Related: Should I delay my retirement?

The one in four workers 56 to 65 who held more than 90% of their 401(k)s in equities heading into the financial crisis certainly could have used such help. Don’t expect miracles, though. Hewitt found that on average investors who sought help performed about the same as investors who were on their own in 2008. They did, however, perform better in 2009 when stocks bounced back.

Is your 401(k) plan letting you down?

Send a letter to the editor to money_letters@moneymail.com.

 

TIME Retirement

Inflation? Hooey, but You Still Need Protection in Retirement

Getty Images

Just as economists and bond traders missed the reversal from inflation to disinflation three decades ago, a new generation lulled into a new reality will miss it again when consumer prices push higher in a sustained way.

Betting on the return of inflation has been a fool’s game for more than two decades. But that doesn’t mean inflation has been whipped forever, and even a moderate sustained rise in consumer prices can have devastating impact on unprepared retirees.

Consider that at just 2.5% inflation, prices would double (and your buying power would be cut in half) over a 28-year retirement. At 4%, prices would triple over that period and your buying power would fall by two-thirds. This is brutal math for any retiree in good health and living on a fixed income.

Economists like Paul Krugman at the New York Times argue there is little to fear. He believes a wrongheaded inflation obsession, chiefly among policymakers, is holding back the economic recovery. Certainly, inflation has been tame; there hasn’t been an annual reading over 4% since 1991 and most readings have been below 3%. Last year came in at just 1.5%, sparking more worries about falling prices than about rising prices.

But others argue that just as a generation of economists and bondholders accustomed to soaring inflation during the 1970s were caught off guard by 25 years of disinflation, today’s generation similarly will be caught off guard by a reversal—and the return of more rapidly rising prices. As the noted economist David Rosenberg at Gluskin Sheff recently wrote:

“We have an entirely new crew of bond traders on the desks, the sons, daughters, nephews and nieces of the old guard, who have only known disinflation, deflation, lower (minuscule) bond yields and radical Fed easing cycles. That is all they have known for their entire professional lives. Their elders didn’t see the great deflation coming, and the offspring don’t see the remote prospect of a moderately higher inflation environment coming at any time on the forecasting horizon.”

To be clear, almost no one is suggesting anything like the 1970s is in store for as far as the eye can see. But health care costs are rising a little faster, rents are going up, and labor may at last be gaining some leverage on wages in the improving economy—all potential harbingers of higher inflation down the road.

“This should scare the hell out of those of us who are retired and living on (at least partly) fixed incomes,” writes the economist Lewis Mandell for PBS. Just to be safe, you may want to inflation protect your income. Certain assets like gold and real estate serve as an inflation hedge but come with drawbacks. Gold produces no income; real estate can be fickle and difficult to sell. Happily, Social Security benefits rise along with consumer prices. So that portion of your security blanket is fine. But almost no other income-oriented investment, including most traditional pensions, automatically adjusts for inflation.

Protecting retirement income is not cheap. Mandell estimates that an immediate fixed annuity with an inflation adjustment initially generates about a third less income than one without an adjustment. So you don’t want to over do it. Still, if you can afford to sacrifice some income now such an annuity with a portion of your savings may offer peace of mind.

Another way to protect your retirement income from inflation is through Treasury Inflation-Protected Securities, better known as TIPS. These T-bonds adjust for rising consumer prices over the life of the bond, which may go out 30 years. They aren’t perfect, or cheap. But TIPS may afford the best income protection you’ll find.

Let’s say you want to protect $10,000 of annual income for the next 30 years. According to Mandell’s calculations, if inflation averages 2% over that period an investment of $52,257 in TIPS would offset any purchasing power loss due to inflation. If inflation over that period hewed to the 100-year average of 3.43% you’d need $79,553 in TIPS. At 4%, you’d need $88,703.

This exercise helps make clear the impact even modest inflation can have on your ability to pay for things with a fixed income over many years. Serious inflation probably isn’t in the cards anytime soon. But with a long runway still ahead, young retirees are at risk of losing their lifestyle unless they protect at least some of their income from the effects of inflation.

TIME olympics

Plushenko’s Retirement Is Proof He Should Have Quit Before Sochi

Sochi Olympics Figure Skating
Evgeni Plushenko of Russia waves to spectators after he pulled out of the men's short program figure skating competition due to illness at the Iceberg Skating Palace, Feb. 13, 2014, in Sochi, Russia. Ivan Sekretarev—AP

The iconic Russian figure skater, hobbled by injuries, should have given way to a younger generation before the Sochi Olympics began

After his aborted performance on Thursday—and the subsequent announcement of his retirement—it became all too clear that Evgeni Plushenko should have passed the torch to a younger skater before the Sochi Olympics commenced. For nearly a decade, the flamboyant figure skater has dominated the sport in Russia. At the age of 31, which is right around retirement age for an Olympic figure skater, he decided to try his Olympic luck for the third time despite a recent spinal surgery. It worked out well for him on Sunday, when he won a gold medal along with nine of his teammates in Sochi as part of the team figure skating competition. But four days later, when it came time for him to perform in the men’s singles, he skated up to the judges booth after a warm-up and told them he couldn’t go on. With that, Team Russia’s chances of a gold dropped to zero in the event where it has long been dominant.

As TIME reported earlier this week, Plushenko’s back was troubling him toward the end of his solo performance at Sunday’s team event. But he and his coaches boldly decided to carry on. “There are no healthy athletes in the major leagues,” said his coach, Alexei Mishin. “Everybody hurts.” Plushenko even suggested that he might compete in the next Winter Games four years from now.

That sounded almost delusional. On the strength of his remaining talents, it had been hard for him even to make it into these Olympics. He lost a key qualifying round in December to a young upstart named Maxim Kovtun, who is 12 years younger than Plushenko and approaching his prime. But the veteran wouldn’t give up. He refused to compete in the last qualifying round for Sochi, saying that he was too busy training for the Olympics, and he used his celebrity status in Russia to help lobby for another shot. After much debate in the press, he got it.

The Russian figure skating association allowed him to dance a “control run” for a committee of skating experts less than three weeks before the Games. Although that performance was never shown to the public or the press, the committee ruled that it was enough to give Plushenko a ticket to Sochi.

That now looks to have been a mistake. The pain that began bothering him during the team event on Sunday never went away, his coach said on Thursday. Then things got worse. The day before the singles event, Plushenko took a heavy fall during training. “The pain didn’t let up in the morning,” Mishin told a Russian newspaper. “We took medication, but it didn’t help.”

Russia, which has no replacement for him in the men’s short program, is now out of that contest, which should have offered one of its best chances for another gold. And they needed it. A week into the Games, Russia has only two golds and stands in seventh place in the overall medals tally, behind Switzerland. Plushenko had a chance to turn that around, but the chances of a younger skater would clearly have been better.

TIME Personal Finance

Knowing Your Net Worth Can Help You Plan

Calculating your net value will help you plan your future more productively.
Calculating your net value will help you plan your future more productively. David Emmite—Getty Images

Calculating your net worth is easy, and a valuable exercise. Here's how.

Your boss doesn’t know your value, right? But do you even know it? Most people have never taken the time to figure their net worth even though it’s a fairly simple calculation. Why not take stock now? The New Year is still full of promise.

Your net worth is what you’d have left after selling everything, paying the bills and settling all debts. Think of it as your liquidation value. The number is of keen interest to heirs trying to understand what will be theirs. But it’s useful for you as well. Calculated annually, your net worth provides the clearest picture of whether you are getting ahead. It helps gauge when you might retire and gives a roadmap to where you are losing or gaining value. That makes it easier to adjust and meet your goals.

Say, for example, your goal is to retire with $1 million. But during the worst two years of the recession your net worth—your total liquid value—went from $380,000 to $250,000. You’d understand right away that you need to adjust. Net worth hits home in a more visceral way than, say, looking only at a 401(k) statement that provides only part of the picture.

To figure your net worth you need two sheets of paper, one of them labeled assets and the other labeled liabilities. You want to add all assets and subtract all liabilities, reducing your life thus far to a single number. You can find online calculators to help. You can also see how you stack up against people your age and at your income level. For example, the median 55-year-old has a net worth of $180,125; the median net worth of households earning $75,000 a year is $301,475, according to Nielsen Claritas.

Start with assets, including retirement savings, checking and savings account balances, bonds or annuities, the total value of any stock holdings, your home and automobiles. To really fine-tune the figure include artwork, jewelry, furniture and other possessions that for most people do not move the needle a great deal. Put a value on each of these things and add them.

On the liabilities sheet, list all credit card balances, personal loans, student loans, auto loans and mortgages. Then add those and subtract it from the figure you got on the assets sheet. Voila. You now know what you are worth on paper. Watching this number from year to year shows how new debts and all spending subtract from your net worth, while general thrift, retired debts, and investments that rise pad your net worth.

The figure is not perfect. Figuring your net worth is especially difficult if you own a small business, which may be difficult to value. If you are young and in a great career your net worth might be negative—but that’s okay. Once those college loans are paid off and you get a few raises that can turn around quickly. Likewise, if your net worth takes a dip because the stock market or housing market fell, that’s not so terrible assuming you can hold on for the recovery. But it’s always good to know where you stand.

TIME Retirement

The Problem With President Obama’s ‘MyRA’ Savings Accounts

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Getty Images

Expanding savings opportunities makes sense. But a big issue is whether people have the means to use them.

To better enable Americans to save for retirement, President Obama said he would order a new “starter” savings plan called MyRA geared at low-income households. It’s a fine idea. But as with any personal savings account, you must be able to fund it for it to matter. That may be the biggest problem with the program.

Little is known about these new accounts. They would function like a Roth IRA, allowing savers to put in after-tax money that would then grow tax-free. They’d be available through your employer to anyone who does not have an individual retirement account or work for a company that offers a traditional pension or 401(k) plan. That comes to about 39 million households.

The big advantage is that you could open a MyRA with as little as $25 and make contributions of as little as $5, creating a regular savings opportunity that most low-income households have never had. Typically, plan administrators require $1,000 or more to open an account. MyRAs would also benefit from a no-fee structure that does not eat away at savings.

Your MyRA would also enjoy a government guarantee against loss of principal. The downside is that your money would be funneled into low-yielding Treasury securities and have little potential to grow enough to make a big dent in your personal retirement savings crisis—or that of the nation as a whole—until you have accumulated enough to roll it into a regular IRA where you might benefit from investments with greater growth potential.

Offering low-income households a place to save doesn’t really fix the big problem: they still must have the money and the discipline to take advantage. More than half of workers have less than $25,000 in savings and 28% has less than $1,000 in savings, reports the Employee Benefits Research Institute. And with the MyRA, you could take money out anytime without penalty. That would be awfully tempting the first time money gets tight.

The retirement savings plan represents an important first step,” says Ai-Jen Poo, director of the National Domestic Worker’s Alliance. Still, she says, “Most Americans are not able to plan for their futures because they are trying to deal with their most immediate needs, like paying their rent and keeping their lights on.”

The new accounts call to mind the so-called “catch-up” provision enabling savers past age 50 to put away an extra $5,500 in their 401(k) each year. That’s a fine idea too, but since its adoption in 2001 only the relatively well to do have used it. Let’s face it: Not many folks have an extra $5,500 lying around.

Only 13% of those eligible have made the extra contributions, according to an analysis of data provided by Fidelity Investments. That’s largely because regardless of age almost no one even contributes the maximum $17,500—already a lot of money to take out of your budget each year. For the vast majority, the extra $5,500 has proven to be irrelevant, concludes the Center for Retirement Research at Boston College.

So let’s not pretend that MyRAs will save our collective retirement dreams. They give more people more opportunity to save, and you cannot argue with that. But for these accounts to make a real difference, the folks they are meant to help most will need extraordinary willpower.

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