Galveston vs. Social Security. Upon retirement after 30 years, and assuming a 5 percent rate of return — more conservative than Galveston workers have earned — all workers would do better for the same contribution as Social Security:
■ Workersmaking$17,000ayearareexpectedtoreceive about 50 percent more per month on our alternative plan than on Social Security — $1,036 instead of $683. [See the Figure.]
- Workers making $26,000 a year will make almost double Social Security’s return — $1,500 instead of $853.
- Workersmaking$51,000ayearwillget$3,103instead of $1,368.
- Workers making $75,000 or more will nearly triple Social Security — $4,540 instead of $1,645.
- Galveston County’s survivorship benefits pay four times a worker’s annual salary — a minimum of $75,000 to a maximum $215,000 — versus Social Security, which forces widows to wait until age 60 to qualify for benefits, or provides 75 percent of a worker’s salary for school-age children.
Two government studies of the Galveston Plan — by the Government Accountability Office and the Social Security Administration — claim that low-wage workers do better under Social Security. However, these studies assumed a low 4 percent return, which is the minimum rate of return on annuities guaranteed by the insurance companies. The actual returns have been substantially higher.
Guidance for Today’s Reformers. Congress could consider making participation in any privatization plan voluntary at first. We made our plan voluntary in the beginning and 70 percent joined. It later became mandatory, and now there is full participation. Also, if some workers remain uncertain about investing a portion of their contributions, the plan could include a guarantee that low-income earners receive the same funds they would get with total participation in Social Security.
Our experience has shown that even though low-income workers would do better, a guarantee would ease their worries. Moderate- and higher-income workers would do much better, as ours do, because they have invested more in the plan and are not prejudicially punished or “topped out” on retirement benefits, as they are in Social Security.
In today’s debate about whether to partially privatize Social Security, the Galveston County plan is sometimes demagogued. But our experience should be judged factually and fairly, not emotionally, politically or on the basis of hearsay. We sought a secure, risk-free alternative to the Social Security system, and it has worked very well for nearly a quarter-century. Our retirees have prospered, and our working people have had the security of generous disability and accidental death benefits.
What has been good for Galveston County may, indeed, be good for this country.
Judge Ray Holbrook was Galveston County judge from 1967 to 1995, and oversaw the creation and ad- ministration of the Galveston County alternative plan. Alcestis “Cooky” Oberg is on USA Today’s board of contributors.