Demagogues cry “they’re trying to take away your Social Security” whenever reforms are proposed to this unsustainable program. Years ago, I tried to give up my Social Security but I wasn’t allowed to. I would have been better off without it. Here’s the story.
Thirty years ago, the other doctors in my group and I had a 401k style retirement plan that we funded as much as we could. We also paid both the employee and employer contributions into Social Security, which were substantial. It was obvious that the dollars we were paying into our private accounts were going to produce a vastly greater return than our S.S. contributions.
The difference was so great I felt it would have been worth it to forfeit our previous contributions into the World’s Worst Retirement Plan in exchange for permission to leave the program and use our payments for personal accounts instead. Of course, it couldn’t be done. Only government workers were allowed out of the system.
Workers in three Texas counties — Galveston, Matagorda and Brazoria — were more fortunate. They and their employers were allowed to make contributions, of the amount that would have gone into Social Security, into an Alternate Plan.
A Houston bank invested these funds in an interest bearing account that guaranteed a base level of return in exchange for accepting only a modest increase when financial markets soar. In the last decade (yes, that decade in which critics have gleefully claimed that personally invested accounts would leave people in poverty), returns have averaged about 5 percent annually, never less than 3.75 percent.
The results speak for themselves. Low-income workers slated to receive $1007 monthly from S.S. today receive $1826 under the Alternate Plan. Middle-income workers go from $1540 (S.S.) to $3600 (A.P.), while workers with maximum contributions get monthly checks for $5000 (A.P.) rather than the $2500 S.S. pays.
But wait — there’s more! A.P. contributions are also used to purchase term life insurance in the amount of four times the worker’s annual salary, up to $215,000. That’s over 800 times the S.S. death benefit. Workers also get disability insurance with better features than Social Security’s.
Most importantly, workers have independence and security. The rest of us have promises from the government, which can legally be rescinded at any time and go to zero when we die. Alternate Plan members own their funds, they know how much is there, and they can pass it on to their heirs.
Chile, the nation with the most comprehensive program of personal retirement accounts, has seen yet another advantage. Workers whose retirement income is pegged to the economy have a vested interest in economic growth. They’re much less likely to buy into an us vs. them, labor-against-management mindset. No need for Occupiers to trash parks around the country to make their point when we’re all in this together.
To this day, all private sector workers are still forced into Social Security. Unfortunately, by clinging to the status quo, we have made reform more difficult. The problem now is that Baby Boomers are streaming into Social Security and Washington has already spent the money that was supposed to be held in trust for them.
So the payroll taxes from today’s workers are needed to fund current beneficiaries. If we allow them to fund personal accounts instead, funds for today’s retirees would have to be sought elsewhere.
That’s tough especially in the current economy, but time is still not on our side. We should begin to chip away at our mountain of unfunded obligations before we have even more retirees and fewer workers.
The esteemed economist Robert Samuelson recently wrote that George W. Bush should apologize for his unsuccessful effort to reform Social Security “because it included personal investment accounts that were bound to arouse ferocious opposition.”
But on this one, Samuelson has it exactly wrong. Bush was right and the apology should come from those who exploited this issue for political gain and unconscionably frightened senior citizens, who were never included in any serious proposal.
We listened to the wrong people before. We could have had the deal the Texas folks got. Now it’s time to face the truth.
• East Valley resident Tom Patterson (firstname.lastname@example.org) is a retired physician and former state senator.