Galveston seems to have the right idea...Congrats to them...Maybe, we should send our elected folks there to see how it is done right.. *** On Tuesday, I explained why millions of federal workers never paid into the Social Security system and I also said many local government employees have opted out as well. One of the most famous examples: Galveston, Texas and two other nearby counties (Brazoria and Matagorda). These areas 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 a massive 78% majority. Of course, what’s most interesting is not that some municipal workers have never participated in Social Security. It’s the contrast between smaller governmental plans like Galveston’s and our national system. So Let’s Take a Look at How Galveston’s Plan Differs from Social Security ... With Social Security, U.S. workers pay a certain percentage of their earnings into the system ... there’s a cap on the amount of their pay that is taxed ... and both of these variables have risen sharply throughout the program’s history. Galveston is a truly an island unto itself ... especially when it comes to retirement plans! Then, once they reach retirement age, contributors begin collecting benefits based on their contribution history, with maximum benefits also subject to specific payout limits. And other groups can also collect money back out of the program, including surviving spouses. Like Social Security, participation in Galveston’s plan is mandatory for county workers. They contribute 6.13% of their gross compensation every year (slightly lower than Social Security’s current rate of 6.2 percent) and Galveston County contributes a slightly LARGER amount to each participant’s account. And 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. Instant Dividends: How to Collect Immediate Payments in Your Brokerage Account In this brand-new report, income investment expert Nilus Mattive introduces you to a conservative strategy that can produce bigger, faster streams of income. Better yet, you can even do it right in your regular IRA account! Just click here to learn more Internal Sponsorship In contrast, Galveston County’s employees who work at least 20 hours a week are covered immediately. Other employees are covered by Social Security. With Social Security, workers get up to 100% of their benefits, less reductions for early retirement. The payments are good for life ... are adjusted annually for inflation (as measured by the government’s Consumer Price Index) ... may be reduced if the retiree is still working ... and the retiree’s spouse can receive up to 50% of the worker’s benefit. 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. Better yet, the lifetime annuity comes with a minimum number of payments guaranteed ... which is something Social Security doesn’t offer. 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 provide ADDITIONAL benefits to spouses or divorced spouses. A clarification on that last point: 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. Both Social Security and Galveston’s plan are invested relatively conservatively — with Galveston mainly opting for guaranteed investment contracts from insurance companies. The Galveston plan does allow for a broader range of investments, but all indications are that it has never chosen to invest in riskier assets. Overall, Social Security and Galveston’s plan have earned similar rates of return over long periods of time ... and Galveston retirees have never lost a dime to market declines. When it comes to disability benefits, Galveston’s plan offers coverage to workers immediately but does not provide additional benefits for their dependents. Galveston’s disability benefits are not based on a progressive formula, either. That essentially means they are proportional to what the person actually contributed, and this is equally true of the plan’s survivor benefits. Speaking of survivor benefits, Galveston employees get to designate their beneficiaries ... while Social Security has “default” settings that cover spouses, many divorced spouses, and all qualified dependents up to a family maximum. In other words, 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. If you’re a single person with no children, Social Security is an especially bad deal for you. Bottom Line: Galveston’s Plan Is Different Because It’s Funded In Advance and Makes Realistic Promises! Whenever the issue of Galveston’s plan comes up, the Social Security Administration is quick to point out that workers can run out of money under this rival plan. And that’s true — IF they opt to take something other than the lifetime annuity option. But 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! A quick look at Galveston County’s most recent financial statement (fiscal year ended September) showed that the plan had assets of about $70.4 million at the end of 2009, up from assets of about $66 million a year earlier. No, the plan doesn’t promise ADDITIONAL benefits to spouses or dependents — just the amounts that workers contributed and to the beneficiaries they designated. Nor does it skew benefits in favor of folks who contributed less ... who are married ... or who have larger-than-average families. And politicians haven’t been raiding the funds to pay other bills, either — contributions are forwarded to third-party administrators on a monthly basis. But I sure wish I was covered by a plan like that. What about you? Best wishes, Nilus Source: easystreetinvesting/
Posted on: Thu, 06 Jun 2013 12:54:31 +0000