Trend No Friend To Social Security Texas Alternative Provides Triple The Monthly Payment

Workers under Social Security who retired in 1942 received a 36.5 percent real return on their contributions. Those born in 1950 will receive about 2.2 percent. And those born in 1975, a mere 1.8 percent.

The main reason for this is the worker-to-retiree ratio. In 1950, there were 16 workers providing benefits for each retiree. That now has shrunk to 3.3 workers per retiree.

Unless restructured, the ratio will be a mere 2-to-1 in 2030.

Does Social Security have a future?

Not on the basis of trends like that. Simply to maintain benefits in the year 2029, Social Security trustees estimate that payroll taxes would have to rise 50 percent to 18.8 percent.

Add that to the current total tax take, which may be about 40 percent, and you would have a fundamental change in the American way of life, marked by lessened freedom, lowered productivity and generational friction.

So, does Social Security have a future? Answer: Not in its present form.

Fortunately, studies suggest most workers already recognize that changes are imperative. Asked in a survey for financial service companies, only 10 percent of worker respondents said it would be the basis of their pensions.

Thirty percent said they would rely most heavily on personal contributions to an employer-sponsored defined contribution plan; and 23 percent indicated that “personal savings and investments” as their main source of funds.

Of several options listed in the survey, and reported by the Investment Company Institute (a mutual fund organization), the most popular was to invest some of the funds in stocks instead of totally in government securities.

While mutual funds might be expected to promote such programs for their own good, various other surveys suggest at a strong interest in learning more about privatizing a portion of the trust funds.

Big questions exist.

Who will invest the funds? In which securities? What if the investments do not pan out? Can they be timed to make funds available when the retiree needs them? A multiplicity of questions is bound to arise.

Already, there have been success stories. Chile pioneered such a system with notably good results. Other nations have experimented, with mainly superior returns.

And a prototype already exists in the United States.

Back in 1981, employees of Galveston County, Texas, voted to leave Social Security for a private alternative, and soon were joined by employees from Brazoria and Matagorda counties.

There are more than 5,000 participants today.

Merrill Matthews Jr., an officer of the National Center for Policy Analysis, a Dallas think tank, reports that a person age 65 with 40 years of deposits and an annual salary of $20,000 would amass a fund of $383,032.

The so-called Alternate Plan offers a number of options for that sum that aren’t available under Social Security. They recipient can, for instance, receive the funds in a lump or choose from among several annuities.

The retired $20,000-a-year employee could receive an annuity payment of $2,740 each month, or triple what Social Security would pay. And perhaps opt for a life insurance benefit providing three times the worker’s salary.

The plan is small, and hardly can be compared to the amounts involved should Social Security go partially along the same route, but it does suggest intriguing possibilities and conceivably a solution to the dilemma.

Members of The Alternate Plan are fortunate.

While the initial Social Security Act permitted municipal governments to go their own way, Congress closed the loophole in 1983.