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. Over the last decade, the accounts have earned between 3.75% and 5.75% every year, with the average around 5%. The 1990s often saw even higher interest rates, of 6.5%-7%. When the market goes up, employees make more—and when the market goes down, employees still make something.We need to build off the successes of this plan on a national level. Yes, we also need articulate leadership on the presidential level in order to promote something like this. Any takers?
But not all money goes into employees' retirement accounts. When financial planner Rick Gornto devised the Alternate Plan in 1980, he wanted it to be a complete substitute for Social Security. And Social Security isn't just a retirement fund: It's also social insurance that provides a death benefit ($255), survivors' insurance, and a disability benefit.
Part of the employer contribution in the Alternate Plan goes toward a term life insurance policy that 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.
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.
Sunday, September 25, 2011
The Galveston Social Security Plan
The first step in solving the Social Security insolvency crisis is to admit that there is a problem. Then, we must look at some successful models for personal retirement accounts. Back in 1981, Galveston, Texas used a loophole in the Social Security Act of 1935 to opt out of the system and pursue personal accounts -accounts that were more profitable and offered real guaranteed property rights. The Wall Street Journal did a nice analysis of the plan: