Wednesday, September 14, 2011

Galveston’s Social Security alternative seen as a model - Yahoo! News

Galveston’s Social Security alternative seen as a model - Yahoo! News: "In the late 1970s, county employees in Galveston, Tex., made an unusual and risky decision that they thought would help secure their financial future. They took advantage of a federal provision available at the time and opted out of Social Security.


Their decision was born out of a fear that the federal entitlement program, designed to keep elderly and disabled Americans out of poverty, might not be around in the future. After careful study, the county employees chose an alternative that allowed them to open personal savings accounts.


Today, Galveston has become a poster child for critics of the Social Security system who say the decision is proof that there is a better way. Among those critics are at least two Republicans in the 2012 presidential race, which in recent days has centered on whether it is better to fix or to replace Social Security.

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For the highest-earning workers in the Gulf Coast county, the personal accounts have yielded nearly double what they might have collected under Social Security. But according to independent studies, the results have been less favorable to those on the lower end of the income spectrum.
In 1999, the Social Security Administration and the General Accounting Office (now the Government Accountability Office) separately examined the program adopted by Galveston and surrounding counties and found that its benefits depended on income and longevity: The lower one’s income and the longer one lived after retirement, the less advantage there was to participating in the program compared with Social Security. Also, Social Security payments increased with inflation, while payments under the Galveston plan did not.


“If you’re single, if you’re well off and you die within 10 years [of retirement], maybe you’ve done better,” said Eric Kingson, a professor of social work at Syracuse University and a vocal critic of the Galveston alternative. “For most people, it’s somewhere between ‘very bad’ and ‘not very good.’ ”"

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