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One initiative President Obama highlighted during his State of the Union address this week, is a plan to help more Americans save for their retirement. What does this initiative mean for your retirement? Hari Sreenivasan speaks with Alexa Simendinger of Real Clear Politics about how this proposal, known as the MyIRA, will work and what issues it will address.
During his State of the Union address earlier this week, President Obama unveiled a plan designed to help Americans save for retirement. Something he called a MyIRA, or MyIRA. For more about this we're joined now from Washington by Alexis Simendinger. She is the White House Correspondent for Real Clear Politics. Thanks for joining us. So, first of all, explain it to us, what's the problem the administration says this is going to address?
Well, the administration, like many people, are very worried that many workers in the United States don't have any option through their workplace to save for retirement, and in fact are not putting money away for retirement and will find that social security isn't enough, or that they should have been looking for private options like Individual Retirement Accounts. So as part of his executive initiatives, the president with the Treasury Department, established a new pilot program that they hope to finish by the end of this year, get it up and running, use a private financial management firm as the administrator, but give millions of workers who don't have options through their employment a chance to save in little micro-accounts — very risk free, there will be low returns, but it will be very safe. And they're describing this as a way to almost have a training or a beginner savings account that would allow workers to get more used to putting money away for retirement, and eventually accrue enough that they could roll it over into regular IRA that we're all used to, where we chose the funds we want to invest in.
And so one of the points we're hearing is that this would be something that employees would opt out of instead of opt into. Why is that important?
No, actually what's interesting about this proposal is the president is saying he would very much like congress to take up a separate legislative initiative that would be called the opt-out, it's an automatic IRA. And congress is a little resistant to that idea because they're concerned that it would require employers to sign up their workers, and they prefer, especially republicans, that it be a voluntary idea, continuing the way we're doing it now in the retirement system. But the president is saying that there are many studies out there that suggest that workers are much more likely to put aside money for retirement if they're automatically signed up for a retirement account through their workplace and then they have the choice to opt out. And there are many academic studies that show we overcome our inertia about saving if someone actually starts to execute it for us. So without congressional support the president is saying he wants to create this little starter saving account, the MyIRA, and encourage workers to think about payroll deductions, automatically, with their employers, employers could offer this, and that they would then accrue money in a very small way, but very risk-free, and get more used to saving.
Okay, briefly how do they know how many people would sign up?
Very good question. And they don't know. They have some, in the administration, some ballpark estimates, but they don't know behaviorally how many workers would be interested in this, how many employers will make this an option to do the payroll deduction, how well they'll be able to spread the word that this is available. So they're not estimating how many, other than to say many millions, they hope, after the pilot program.
All right, Alexis Simendinger from Real Clear Politics. Thanks so much.
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