Galveston County: A Model for Social Security Reform

The current debate over Social Security reform is reminiscent of the discussions that occurred in Galveston County, Texas, in 1980, when county workers were offered a retirement alternative to Social Security: At the time they reacted with keen interest and some knee-jerk fear of the unknown. But after 24 years, folks here can say unequivocally that when Galveston County pulled out of the Social Security system in 1981, we were on the road to providing our workers with a better deal than Franklin Roosevelt's New Deal.

The Problem with Social Security. Social Security is a pay-as-you-go system under which taxes collected from today's workers are used to pay today's retirees. That was sustainable in the past; for example, in 1950 there were 16 workers providing benefits for each retiree. However, today the ratio has dropped to 3 workers for each retiree, and by the year 2030 the ratio will be 2 to 1.

America's demographic changes and the program's expansion have driven the initial Social Security tax rate from 2 percent (1 percent each from employer and employee) to 12.4 percent today, and threaten to drive it even higher. This unsustainable trend is why policy makers are looking for ways to reform the system.

One of the most prominent proposed reforms would allow younger workers to divert some of the payroll taxes they already pay to create personal retirement accounts. The burden on future taxpayers would decline as retirees draw retirement benefits from their personal accounts, reducing the demand for taxpayer-funded benefits. Current and near-retirees would be unaffected and would continue to receive currently scheduled benefits. But how should the new accounts be structured? Some point to Chile, Britain, Australia or one of almost 30 countries...

Excellent. I believe there are alternatives to Medicare too. I would love to see folks become weened from the federal government in every possible way.

Social Security
Medicare
Education

And a big fat NO to nationalized health care...

To paraphrase John Lennon:

Imagine no more workers, on the government’s dime...

Well it is our dime, but you catch my drift.

Reduce taxes. Pay down the debt. Reduce taxes some more...

This plan does seem to have great possibilities. First, the law would have to be changed so that people have the option of opting out of SS. One of the requirements would be that if you opt out, you would be required to participate in a plan such as this.

One of the problems with SS, if I understand it correctly, is that SS has been dumped into the "general fund" over the years and has been continually diverted to other purposes. The bottom line is that the government likes having control of the money. Unfortunately, if the government were a financial institution, they would have been sued by now for not living up to their fiduciary responsibility.

What's excellent about this plan is that it is fiscally responsible, yields greater returns and can be handed down to heirs.

From the article:

The initial Social Security Act permitted municipal governments to opt out of the system - a loophole that Congress closed in 1983. In 1981, employees of Galveston County, Texas, chose by a vote of 78 percent to 22 percent to leave Social Security for a private alternative. Brazoria and Matagorda counties soon followed, swelling the private plan to more than 5,000 participants today. In the private plan, contributions are similar to those for Social Security but returns are quite different.

Well, even after SS was formed we got Railroad Retirement and Civil Service. Isn't it weird that the gubmint always has something different than us? I think most would agree that Civil Service is more desirable than SS.

Although if you look at CALPERS and other state owned hedge funds, they've taken quite a hit lately. No worries, I'm sure the California garbage man will still retire making 250k per year even if it takes a gubmint bail out. I'll still get my trusty $1600 a month on SS,( in 4 more years), even if it takes burning up the printing press.

If you do a hypothetical on this "new" retirement savings plan, you could see that if you were FORCED to put your money into SAFE plans, you could envision treasury bonds drawing 4-6% laddered over several years and maybe a mixture of corp bonds that yield even higher. That is almost NO danger for the holder.

Now compare that to SS and you will find returns in the 2% or less range. You are also under the thumb of the government to get a raise or you can wait for the inevitable cuts that HAVE TO COME! I have already experienced the cut by raising my age of retirement. Income justification can't be far behind. A person makes $100k in retirement that paid his whole life into the "insurance" fund and he is told he makes too much money. Now it is a lifelong tax instead of the extra income he was promised.

SS is just a socialist program and is therefore, by definition a Ponzi Scheme. There is NO socialist program on the planet that has ever worked. The principle that was envisioned with SS is more workers paying for less retiree's. It has turned out just the opposite, which almost any economist or insurance agent could have told you 50 years ago. Now that we are very close to 2 workers for each retiree, two workers will be taxed @$500 a month to pay one retiree at $2000 per month.( the boss pays also) Of course that isn't even true because the gubmint just throws the "lock box" under the bus and it ends up in some crap hole in Washington DC, then we rob retiree's of their money by allowing SSI payments and pays illegal aliens, and on and on. Also many people forget that the place you work must match what you pay for SS. So if you pay $1 into SS, your employer pays $1 for you. That could be your money if you were allowed to have an account with the money going into fixed income guaranteed by the FDIC. If you have $1000 in the account, you actually have $2000 drawing drawing the FDIC backed interest.

In a fuzzy kind of way, I did this for my retirement. I was allowed to save a certain amount for my 401k tax free. My boss matched some of the funds that I saved. I don't think you will find too many people that will curse their 401k. The principle is sound. After 30 years of working for the phone company, I can draw $3k-$4k a month easily on my IRA that was rolled from the 401k. I have made $10k a month, but that isn't average. I still have 5 more years before I can draw my SS and they are estimating $1600 a month after working since I was 12 years old. The only drawback is it would keep Pelosi from fondling my money before she sent a pittance back to me after decades of work. I can't understand why people just feel better letting the government take a cut before they get their own money back. Years ago I read that every dollar sent to Washington was cut by a third and then the money was sent back out. My bet is it is worse now.

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