Saving money is difficult, particularly for low-wage earners raising young families. Truth be told, even though I already had a solid career as a twenty-something father of three sometime in the last millennium, it still required enormous discipline to sock away money. And I hadn’t forgotten those years when I scribbled my satirical letter about myRA—a letter that sparked quite a lot of feedback (which I love) from our readers.
Judged purely by the numbers, myRAs are a lousy investment. As proposed, they will have the same variable return offered by the Government Securities Investment Fund. The fund’s return in 2013 was 1.89%, a rate of return our premium subscribers surely wouldn’t stand for from our portfolio.
Proponents of the plan note that myRAs carry no fees and their value won’t ever go down. The no-fee aspect is wonderful. I’m constantly warning retirees against unnecessary fees.
Nevertheless, claiming that the value of these accounts cannot shrink is ludicrous. Sure, the dollar amount won’t drop, but with a return of 1.89% or so, a myRA’s purchasing power most certainly can and likely will. Investments need to return at least the rate of inflation just to maintain their true value. You cannot start making real money until your investments overcome that first hurdle.
Why not open a Roth IRA straight away? With a few exceptions, your Roth IRA can invest in almost anything. Plus, a Roth doesn’t mean handing over control of your first retirement dollars to the federal government in exchange for a meager return.
Still, saving is a habit, and it requires that people start somewhere… anywhere. Many of you pointed out that saving just $5-10 per week in a myRA and getting used to one’s employer making those little extra deductions was worthwhile even if myRAs are not the greatest investment. Plus, myRAs have a maximum balance of $15,000, so folks who contribute regularly will eventually (hopefully quickly) graduate into a Roth IRA.
I do, however, like to think I am open-minded. Perhaps it is time for me to reconsider my position on myRAs…
Did you know the last week of February was America Saves Week? Somehow I missed it. The Consumer Federation of America (CFA) released their annual survey in conjunction with the week’s events, and some of the quotes highlighted that perhaps I underestimate the challenge many face in today’s economy. Here is a tidbit that hit home:
“… (D)espite the economic recovery, most Americans continue to face significant personal savings challenges. When asked if they were making progress in meeting their savings needs, only about one-third (35%) said they were making ‘good’ or ‘excellent’ progress while nearly two-thirds (63%) said they were making only ‘fair’ or ‘no’ progress.”
Stephen Brobeck, Executive Director of the Consumer Federation of America and a founder of America Saves, noted:
“Only about one-third of Americans are living within their means and think they are prepared for the long term financial future. One-third are living within their means but are often not prepared for their long term future. And one-third are struggling to live within their means.”
Like I mentioned earlier, I recall having a tough time saving as a young man. The solution was twofold: find a way to save regularly, and save in way that kept me from dipping in to buy the really cool thing I would inevitably want. I had to make it tough to access the money. It was for medical emergencies or unexpected huge car repairs, maybe, but certainly not for a new color TV (a very significant purchase in those days).
I finally came to the conclusion the best way to save was to increase my house payment. I got a quarterly production bonus so I took some of that each quarter and paid off additional principal on our mortgage. This was before the days of IRAs and 401(k)s—two saving godsends that penalize early withdrawals.
How easy is it for people today? Not as easy as one might think. From the CFA:
“The proportion of those with a ‘savings plan with specific goals’ slipped from 55 percent in 2010 to 54 percent in 2013 to 51 percent in 2014. The proportion of those with a spending plan which allows sufficient saving declined from 46 percent in 2010 to 43 percent in 2013 to 40 percent in 2014.”
Having a plan results in more effective saving. That’s just common sense. Set a long-term goal, set short-term goal markers and plan how to reach those goals, and you will have a strong chance of success.
Lower-income workers are not the only group struggling to save. Brobeck noted,
“The group hit the hardest by the Great Recession and its aftereffects have been moderate income households. … The rest of the middle class was not damaged as severely, and lower income households were protected somewhat by the social safety net.”
Now, I suppose a myRA could be a solid first step in a young person’s savings journey. Whatever that first step is, though, keep in mind that successful savers share many of the same characteristics:
- They develop a plan.
- They get out of high-interest debt.
- They segregate their savings. This may entail:
- Saving money for a special purchase;
- Saving for emergencies; and
- Saving to accumulate wealth.
- They look for every opportunity to continually increase their rate of saving.
Savers can easily assess their progress on the America Saves website here.
Those of you who wrote in about my article all agreed there are many better investments than lending money to the government at very low rates. At the same time, I agree with you: If the other option is not saving at all, then by all means get started.
Thanks for the feedback! Your comments were real eye openers for me.
Those who want to retire and stay retired need to accumulate capital as best they can and invest it wisely. While I may not have liked the investment in ultra-low interest government debt, everyone has to start somewhere. Our mission at Miller’s Money Forever is to show you how to accumulate wealth by taking money you’ve saved and growing it safely ahead of inflation so your retirement dreams can come true.
One old formula still applies: the magic number is 72. If you had a safe government bond paying 6% it takes 12 years (12×6=72) for the amount to double. It is the magic of compounding. Unfortunately for too many baby boomers, a 2% government bond won’t help much. It would take 36 years for that money to double. There are better ways to make sure we can still grow our money safely.
The nine stocks in our portfolio were up an average of 24.1% when our March issue was released. 50% of our portfolio is invested in other instruments as a balance for additional safety. We are quite proud of that track record. For a look at our portfolio, I urge you to subscribe here today. The subscription is $99/year. If you’re not satisfied, you can cancel within the first 90 days and receive 100% of your money back, no questions asked.
A Word on the Daily Pfennig
Last Sunday, good friend Chuck Butler from EverBank gave us the honor of being the first guest writer for his free e-letter, the Daily Pfennig.
Chuck is president of EverBank World Markets and a seasoned currency expert. His daily missive, the Pfennig, is as informative as it is entertaining—and every morning I look forward to receiving the Pfennig in my inbox. It’s one of the three free reports I read every day to help me understand what is really going on in the world (the other two being Ed Steer’s Gold and Silver Daily and the Casey Daily Dispatch). All of them are excellent and to the point, unlike many mainstream media outlets.
When Casey Research asked me to start Miller’s Money, the first person I called was Chuck Butler. He was most encouraging, both personally and professionally. He saw a tremendous need in the market for someone to help baby boomers and retirees grow their nest eggs safely so their retirement dreams would actually come true.
Thanks again, Chuck!
On the Lighter Side
The Cubs, a young team this year, are off and running in their 2014 season. Jeff Scott of pregame.com assessed their chances this way:
“The Chicago Cubs had a miserable 2013 as they finished with a 66-96 record. … Vegas odds have the Chicago Cubs at +3500 to win the NL Central, +5500 to win the NL Pennant and +12500 to win the World Series.”
While I am a fan, I’m not taking that bet. There are much better investment opportunities for all of us.
While the government-reported inflation rate is less than 2%, I would challenge anyone from the Bureau of Labor Statistics to take a family of six to the ballpark and buy them lunch. Year-over-year increases were a lot more than 2%. One creative beer vendor hawking his wares finally urged the crowd, “Beer here! Come on folks, it’s only $42 per six pack!”
Two more gems passed along by Tom B.:
Until next week…