May 12, 2011


How Three Texas Counties Created Personal Social Security Accounts and Prospered (Merrill Matthews, May. 12 2011, Forbes)

Like Social Security, employees contribute 6.2 percent of their income, with the county matching the contribution (Galveston has chosen to provide a slightly larger share). Once the county makes its contribution, its financial obligation is done. So there are no long-term unfunded liabilities.

But not all of that money goes into an employee’s retirement account. When financial planner Rick Gornto devised the Alternate Plan in 1981, he wanted it to be a complete substitute for Social Security. And Social Security isn’t just a retirement fund; it’s social insurance that provides a death benefit—a whopping $255—survivors’ insurance, and a disability benefit.

Part of the employer contribution in the Alternate Plan goes toward a term life insurance policy, which pays four times the employee’s salary tax free, up to a maximum of $215,000. That’s nearly 850 times Social Security’s death benefit.

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

And those who retire under the Galveston model do much better than Social Security. For example:

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, according to First Financial’s calculations.

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 vs. $5,000 to $6,000 a month from the Alternate Plan.

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Posted by at May 12, 2011 8:16 AM

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