A Real Life Solution, Not a Risky Scheme

This is an excellent analysis of how an alternate plan to Social Security would work here in the United Sates. What is unique about this analysis is that it reviews an actual alternate plan now in use by Galveston County in Texas. They opted out of social security around 1980 when the law allowed local or state governments to opt out and create their own plan. So we have a real example that can be picked apart to see how it has fared.

No Risky Scheme: Retirement Savings Accounts that are Personal and Safe

One of President George W. Bush’s most important and controversial campaign proposals was to let workers place a portion of their Social Security payroll tax into Personal Retirement Accounts (PRAs). That seemed to many people like a great idea when the stock market was reaching new heights. But recent market volatility—the market having lost, by some estimates, about $4 trillion in value—has forced the public, the media and members of Congress to reconsider the wisdom of allowing workers to invest their Social Security retirement funds in the stock market.

Nevertheless, American workers want and need to make more than the roughly 2 percent or less interest they earn from their Social Security payroll tax contributions And many are aware that Social Security is facing a financial day of reckoning—around the year 2016, according to the 2001 Social Security trustees report. The Social Security trust fund may be in good financial shape today—but it won’t be for long.

To conclude their analysis they end with the following:

For several years the debate over reforming Social Security has centered on an IRA model, in which people’s contributions rise or fall with the stock market—or even individual stocks. That model works in other countries and it can work here. However, stock market volatility and political posturing may make that option politically impossible.

Fortunately, there is an alternative. Thousands of Texans have had Retirement Savings Accounts for 20 years and never lost a dime. Today, they are retiring with thousands of dollars more than they would have had had they remained in Social Security all of their working lives.

Can RSAs work? They already do. We have a model with an excellent track record. It is time to stop looking at those three Texas counties with envy, and look at them as a model for no-risk Retirement Savings Accounts for every American.