Friday, March 18, 2005

Another View on Social Security

In this article, Judge Ray Holbrook and Cooky Oberg present a "Model for Social Security Reform." In it they highlight a program initiated by Galveston County in Texas (my old stomping grounds) that was designed to replace social security benefits for county employees in 1980.

When I was county judge in 1979, many county workers were concerned about the soundness of Social Security, as many people are today. We could either stay with it — and its inevitable tax increases and higher retirement ages — or find a better way. We sought an "alternative plan" that provided the same or better benefits, required no tax increases and was risk-free. Furthermore, we wanted the benefits to be like a savings account that could be passed on to family members upon death.

Our plan, put together by financial experts, was a "banking model" rather than an "investment model." To eliminate the risks of the up-and-down stock market, workers' contributions were put into conservative fixed-rate guaranteed annuities, rather than fluctuating stocks, bonds or mutual funds. Our results have been impressive: We've averaged about 6.5% annual rate of return over 24 years. And we've provided substantially better benefits in all three Social Security categories: retirement, survivorship, disability.

Our plan vs. Social Security

Upon retirement after 30 years, and assuming a more conservative 5% rate of return, all workers would do better for the same contribution as Social Security:

• Workers making $17,000 a year are expected to receive about 50% more per month on our alternative plan than on Social Security — $1,036 instead of $683.

• Workers making $26,000 a year will make almost double Social Security, $1,500 instead of $853.

• Workers making $51,000 a year will get $3,103 instead of $1,368.

• Workers making $75,000 or more will nearly triple Social Security, $4,540 instead of $1,645.

• Our survivorship benefits pay four times a worker's annual salary — a minimum of $75,000 to a maximum $215,000 — rather than Social Security's customary onetime $255 survivorship to a spouse (with no minor children). If the worker dies before retirement, the survivors receive not only the full survivorship but get generous accidental death benefits, too.

• Our disability benefit pays 60% of an individual's salary, better than Social Security's.

In 1980, labor unions and some traditionally liberal Democrats provided mighty opposition. They considered taxpayer-fed Big Government programs the only secure ones, to the exclusion of other options. However, we held meetings that included debates with Social Security officials and put it to a vote: Our workers passed it by a 3-to-1 margin in 1981 — just in time.

We got our plan in place before the U.S. Congress passed a "reform" bill in 1983 that closed the door for local governments to opt out of Social Security.

This is not a fantasy or an untested program; it is a successful alternative to social security--used by a large county government in Texas-- that has been tested in the real world for over 20 years. If this doesn't demonstrate the fact that people can do much better saving for retirement through a private plan, then nothing will convince the naysayers. As the article above suggests, the opposition to such plans of choice really come from "traditionally liberal Democrats...[who] consider taxpayer-fed Big Government program the only secure ones." These people are the new reactionaries, opposed to anything new or demonstrably better because they are invested in the past.

I hope this program gets the attention it deserves.

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