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Galveston vs. Social Security

From Martin Weiss Research.

"How they opted out is not nearly as interesting or controversial as the story of the Amish … they simply used an exemption that existed until 1983 and allowed municipal governments to form their own alternate retirement plans. In Galveston, the idea was put to a vote and won with 78 percent in favor of the decision."

...

"Like Social Security, participation in Galveston’s plan is mandatory for county workers. They contribute 6.13 percent of their gross compensation every year (slightly lower than Social Security’s current rate of 6.2 percent). Galveston County contributes a slightly larger amount to each participant’s account, and that amount has risen a bit over time.

Like Social Security, Galveston’s plan also offers both survivor and disability benefits. But that’s where the similarities end. Here’s a rundown of some of the differences (most of which come from this document from the Social Security Administration) …

To qualify for Social Security, workers must accumulate enough credits, which takes about 10 years in the workforce.

In contrast, Galveston County’s employees who work at least 20 hours a week are covered immediately (other employees are covered by Social Security)."

...

"Galveston offers its employees a number of choices for receiving benefits — including a lump sum distribution, as well as annuities ranging from five years of payments to distributions for life (with a minimum number of payments guaranteed).

In addition …

There is no “retirement age” with Galveston’s plan — workers can begin collecting their benefits upon retirement or termination.

Their benefits are not reduced if they continue working after they leave their county job.

And notably, Galveston’s plan doesn’t offer inflation adjustments … nor does it provide additional benefits to spouses or divorced spouses. Spouses may only receive benefits once the worker leaves his county position … and divorced spouses may only receive benefits if they’ve been designated as beneficiaries or by court decree."

...

"...a Galveston employee knows that some beneficiary is getting a benefit … Social Security only guarantees benefits to certain household members, and tends to reward larger households with greater numbers of young dependents."

...

"Galveston’s plan lets workers decide how they want their money.

Most importantly, it virtually guarantees that the money will be there because unlike Social Security it is fully funded in advance!"

I came up with an idea to just opt for Social Security OR an IRA, and have your Social Security deductions go into one or the other--NOT BOTH! You'd have to pick one or the other, and NO CHANGES! That way, those of us who opt for IRAs don't get their money raided by politicians, or by spouses and/or dependent children unless they are official beneficiaries. We can also control where the money's invested, and many times, can make more than the average 3% return that Social Security money makes invested in Treasury bonds.

One advantage of doing this: you can convert the IRA into a Roth account, and have your retirement money tax-free, while the Social Security recipients are stuck paying taxes on their money at retirement (they have to claim it as income).

Another advantage of doing this: if you put your IRA into a self-directed account (available through these firms--look up "self-directed IRA trustees"), your retirement money can be invested in a whole lot of things besides stocks and bonds, but not the illegal stuff (antiques, gold, silver, art, wines, collector cars, stamps, rugs, etc.) Many people go the self-directed route with real estate, putting rental real estate into their portfolios.

Should the tax code change for IRA accounts, and they lose their tax-deferred or tax-free status, things change drastically. Then, we're pretty much all looking for tax-advantaged mutual funds, triple tax-free munis, and triple tax-free zero coupon bonds. But even these can be a leg up over ho-hum Treasuries that can be raided at any time.

Then we have the S-T-R-E-T-C-H IRA program...Social Security doesn't have THAT!

Posted by Cute at 6:50 PM

Labels: economy, financial (non-tax)