NCPA - National Center for Policy Analysis

Texas Plan Shows Alternative to Social Security Works

October 9, 2001

Galveston County, Texas, employees have benefited from an alternative to Social Security for 20 years. In 1981, 72 percent of county employees voted to adopt a privately funded retirement plan with a life insurance and disability component comparable to Social Security. A year later, Matagorda and Brazoria counties also adopted the plan.

Under an option that ended in 1983, the counties dropped out of the Old Age Assistance and Disability (OASDI) portion of Social Security but remained in Medicare and continue to pay the Medicare portion of the payroll tax. To replace OASDI, employees contribute the same 12.4 percent to their plan as other workers pay to Social Security.

The plan manager pools the money and loans it to a major financial institution for a competitive and guaranteed return -- which has varied from five to 15 percent. Although the returns are lower than the stock market's, the benefits are generally higher than Social Security benefits.

  • A high-income worker (earning $51,263) would receive a lifetime income of $3,846 a month -- 90 percent of pre-retirement income.
  • The same worker would receive only $1,540 a month (36 percent of pre-retirement income) from Social Security.
  • A low-income worker with an annual income of $17,124 would receive $1,285 a month from the plan -- again, 90 percent of pre-retirement income.
  • The same worker would only get $782 a month -- 54.8 percent of pre-retirement income -- from Social Security.

Workers also have a choice. They can receive a lifetime annuity or they can take the money as a lump sum.

The bottom line, experts say, is that privatizing Social Security is a reasonable option.

More information on privatization can be found at the National Center for Policy Analysis Web site devoted to Social Security (

Source: Scott Burns, "Social Security Can Thrive if Privatized," Dallas Morning News, October 9, 2001.


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