Check out this story on how Galveston County in Texas has successfully privatized their own retirement funds!
Tolbert Newman, operations manager for the First Financial Group who handles the overall responsibility for these plans for the three counties, cites the following example of the growth that can be achieved in this Alternate Plan pension fund. If an individual is 25 years old and makes a $2,000 annual contribution for just ten years, assuming an 8 percent earnings rate, this individual will have $314,870 when he or she retires at age 65. If he works continuously for 40 years, he may well have accumulated a million dollars, depending on his contributions.
This idea began taking hold in a big way. The entrepreneurial spirit was alive and well. In a short period of time the idea spread and some 200 other counties, as well as many cities, in Texas and throughout the entire country, saw the latent possibilities of the program and were ready to become candidates to opt out and join the plan that First Financial Group had devised.
Then as these other political subdivisions began to set the wheels in motion for this farsighted change, up jumped the devil, Congress. Social Security had gone broke the year before and our legislators were now looking for ways to bail out the system. Capitol Hill had already decided to include the federal employees and then got a rude shock when it looked as though all employees of the various counties in Texas, and others throughout the country, were about to opt out of Social Security. That was a calamity it could not allow, so Congress canceled the opt-out clause in 1983. Fortunately Galveston, Brazoria, and Matagorda counties had their systems up and running and so the grandfather clause applied, and they were allowed to continue their Alternate Plan, much to the chagrin of all these other Texas counties.
The Alternate Plan that began as a fledgling, upstart employee benefit plan has stood the test of time and has shown that it can and does outperform Social Security. The plan that started in Galveston County ended the first year with a modest balance. Today, with over 5,000 employees from these three counties The Alternate Plan has grown to a very healthy and sizable portfolio. Those who retire after 20 years will receive three to four times the rate as under Social Security. This Alternate Plan is not just an isolated act of a group of responsible and dedicated Texans. There are countless other examples of other local and state government entities showing the same responsibility and initiative throughout the United States. There are now five states that are not under Social Security and have their own plans: California, Nevada, Maine, Ohio, and Colorado. In the Colorado plan they now have over $14 billion in assets. Local government entities such as police and fire departments have long handled their own retirement plans.
These plans clearly demonstrate that if left alone enterprising Americans can set up retirement systems, second to none.
The bottom line is that workers are retiring with better, more secure pensions and, increasingly, at an early age. For instance, since the early-retirement option was introduced in 1988, the average monthly pensions for workers retiring early have ranged from $258 (in 1989) to $318 (in 1994). By comparison, the representative worker in the United States retiring at age 62 is getting monthly benefits that range from $506 to $780 under Social Security.[3] That is an indication of the efficiency of the private system in Chile, not just in comparison with the old Chilean government-run social security system, but also in comparison with the government-run system in the United States, a country where per capita income is more than five times higher than in Chile. Chilean workers who retire at 65 are also getting benefits that are higher relative to per capita income than the benefits U.S. workers get under Social Security.
Through their pension accounts, Chilean workers have become owners of the means of production in Chile and, consequently, have grown much more attached to the free market and to a free society. This has had the effect of reducing class conflicts, which in turn has promoted political stability and helped to depoliticize the Chilean economy. Pensions today do not depend on the government’s ability to tax future generations of workers, nor are they a source of election-time demagoguery. To the contrary, pensions depend on a worker’s own efforts and thereby afford workers satisfaction and dignity.
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