KUSA - On Wednesday President Obama ordered the creation of a new retirement savings program, during a visit to a U.S. Steel plant near Pittsburgh.
The president first pitched the idea on Tuesday night as a way for millions of Americans with no workplace retirement accounts to begin saving.
The myRA program will invest savings in government backed bonds. There is a guaranteed rate of return.
The plan is owned by the individual. However, businesses can allow automatic paycheck contributions.
It's similar to a Roth IRA and just so happens that it will be offered through Roth IRA accounts. The account will allow the saver to put money into a savings account after taxes, where it can increase tax free.
The myRA plan allows households earning up to $191,000 dollars a year to participate.
It is seen as the president's attempt to make sure that as people age, they can become financially independent, even if social security plays a smaller role.
The challenge is that many Americans are not saving enough to retire comfortably. More than a quarter of American workers said they had less than $1,000 in savings.
"I have doubts about whether a new savings program is all of a sudden going to turn a large percentage of the population into a saver, as opposed to a spender," Allen said. "Most people spend their entire paychecks. So it's very challenging for a lot of people to think about putting money away for retirement."
It remains to be seen whether or not a new government program is going to help change that behavior.
"Anything that helps people save for retirement and it has a simple, easy solution is a great step in the right direction," Allen said.
There will be no company matches with a myRA. In some cases employers match a certain percentage of what the employee contributes to a 401(k) . The matching program has often been referred to by some as "free money."
"But for people just starting out, or perhaps not having a 401(k) plan available to them, this will be at least an option that they can elect to do."
The downside is that a fixed rate of return is not going to generate as much money as if you invest in riskier assets, such as stocks or real estate.
A myRA plan can be rolled into a private employer plan, such as a 401(k), at any time.
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