NCPA - National Center for Policy Analysis

Experience Of Three Texas Counties Supports Retirement Savings Account

July 5, 2001

Those opposed to allowing Americans to invest part of their Social Security taxes in private retirement accounts often play the "risk" card. The stock market, they say, is too risky for American workers to gamble their retirement incomes in it.

Although countless studies show the stock market over decades produces far better returns to retirees than Social Security, some proponents of privatization have come up with a model that would shield participants from risk. Rather than relying on an "investing model," they propose a "savings model" -- which might be called a retirement savings account, or RSA.

Over the past several decades, local government employees in three Texas counties -- Galveston, Matagorda and Brazoria -- have participated in a similar plan in lieu of Social Security. They have benefited greatly from the plan.

  • Workers in Galveston Co., for example, contribute 9.7 percent of their payroll tax to a retirement savings plan that is administered by top-rated financial institutions and earns guaranteed interest rates.
  • The rates have varied from about 5 percent up to 15.5 percent -- but average about 7.5 percent to 8 percent.
  • Even at a 5 percent return, participants eventually realize twice what they would from Social Security -- all at virtually no risk, since the plans work more like a bank than an investment account.
  • Upon retirement, workers can take their money in a lump sum or purchase an annuity that will pay them a guaranteed income for life -- and the funds become part of their estates when they die, and are transferable to their survivors.

The private company that manages the plan reports that a worker earning just $17,124 and retiring at age 65 would get $782 per month from Social Security -- but $1,285 under the plan. A worker earning $51,263 at 65 would get $1,540 from Social Security, compared to $3,846 from the plan.

Source: Rep. Pete Sessions (R-Texas) and Merrill Matthews Jr. (American Conservative Union Foundation), "Want to Reform Social Security? 3 Texas Counties Offer a Model," Investor's Business Daily, July 5, 2001.


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