While politicians argue about what, if anything to do with Social Security, maybe we should look at life without Social Security.
Thirty years ago three Texas counties opted out of Social Security. Their employees continued to pay the same 6.2% tax that they would have under Social Security, and the counties continued to pay the 6.2% tax that any employer would pay.
But, there was one big difference. Unlike your Social Security taxes paid, where the government spent every nickel it could get its hands on, all money collected was pooled and investment firms were asked to bid on the money. The firms guaranteed a rate of return, that over the years, ranged between 3.75% and 5.75%. But, not all of the money was invested. Some of it went to purchase life insurance for each employee.
The results are worth noting. Your death benefit under Social Security is $255. Any employee of these counties has a tax free death benefit of four times the employees salary up to a maximum of $215,000. If you die before collecting Social Security, you get nothing. For the employees of these counties, the money in each employees account at death becomes part of the employees estate.
On the retirement benefits side,
- an employee making about $26,000 will receive $1826 per month, but only $1007 under Social Security,
- an employee making about $51,200 will receive $3600 per month, but only $1540 under Social Security, and
- an employee making a high income will receive $5000 to $6000 per month, but Social Security “maxes” out at $2500.
And, if you are not convinced yet, none of these counties has any “unfunded” pension obligations, as they pay the “employer share” into the plan as they go. Of course, our federal government cannot say the same about Social Security.
In 1983 Congress changed the law so that now, only public employees can opt out of Social Security. But, should they change that law, is there any reason why this country couldn’t begin to phase in a program similar to this for all Americans?