Texas Does Retirement Better

Merrill Matthews writes about the alternative to Social Security that was adopted by three Texas counties decades ago (“Perry Is Right: There Is a Texas Model for Fixing Social Security“):

Since 1981 and 1982, workers in Galveston, Matagorda and Brazoria Counties have seen their retirement savings grow every year, even during the Great Recession. The so-called Alternate Plan of these three counties doesn’t follow the traditional defined-benefit or defined-contribution model….

As with Social Security, employees contribute 6.2% of their income, with the county matching the contribution (or, as in Galveston, providing a slightly larger share). Once the county makes its contribution, its financial obligation is done—that’s why there are no long-term unfunded liabilities.

The contributions are pooled, like bank deposits, and top-rated financial institutions bid on the money. Those institutions guarantee an interest rate that won’t go below a base level and goes higher when the market does well….

If a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving children or a spouse who didn’t work). But a worker in the Alternate Plan owns his account, so the entire account belongs to his estate. There is also a disability benefit that pays immediately upon injury, rather than waiting six months plus other restrictions, as under Social Security.

Those who retire under the Texas counties’ Alternate Plan do much better than those on Social Security. According to First Financial’s calculations, based on 40 years of contributions:

• A lower-middle income worker making about $26,000 at retirement would get about $1,007 a month under Social Security, but $1,826 under the Alternate Plan.

• A middle-income worker making $51,200 would get about $1,540 monthly from Social Security, but $3,600 from the banking model.

• And a high-income worker who maxed out on his Social Security contribution every year would receive about $2,500 a month from Social Security versus $5,000 to $6,000 a month from the Alternate Plan….

The Alternate Plan could be adopted today by the six million public employees in the U.S.—roughly 25% of the total—who are part of state and local government retirement plans that are outside of Social Security (and are facing serious unfunded liability problems). Unfortunately this option is available only to those six million public employees, since in 1983 Congress barred all others from leaving Social Security.

If Congress overrides this provision, however, the Alternate Plan could be a model for reforming Social Security nationally. After all, it provides all the social-insurance benefits of Social Security while avoiding the unfunded liabilities that are crippling the program and the economy.

Just think of it: real saving to underwrite economic growth, no crushing burden on future generations, and more money for retirees.

It’s a shame that FDR, his successors, and many Congresses have been incapable of grasping basic economic concepts. They have been too busy “governmentizing” the economy and slowing economic growth through their “soak the rich” schemes.

Related posts:
Social Security Is Unconstitutional
Why It Makes Sense to Privatize Social Security
P.S. on Privatizing Social Security
That Mythical, Magical Social Security Trust Fund
The Real Social Security Issue
Social Security — Myth and Reality
Nonsense and Sense about Social Security
More about Social Security
Social Security Privatization and the Stock Market
Social Security: The Permanent Solution
Social Security Transition Costs, in a Nutshell
A Market Solution to the Social Security Mess?
Saving Social Security
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
PolitiFact Whiffs on Social Security

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