Could somebody explain to me how social security is nothing more than a Ponzi (pyramid) scheme?

I read somewhere that the average person drawing social security now can expect to draw out $70,000 more than they put in. However, someone in my generation can expect to draw $322,000 less than they put in.


Whistler

 

When SS first came into being, it was to be a safety net for those few who lived long enough to qualify (65 was way past the expected life span at that time). Like many government programs, it took on a life of it's own and expanded as did population and life expectency. Like a Ponzi scheme, todays money goes to pay yesterdays obligations. Fewer and fewer workers fund the payments to more and more receivers and the baby boomers are about to come on line. Can this continue indefinately? Do the math.
Dono

 

First of all, SS was originated as a trust. A surplus was calculated into the taxes, which, properly managed and with incremented increases to keep up with actuary updates, would provide for retirees on an indefinite basis.

Along came politicians who passed legislation which allowed them to 'borrow' the surplus for the general fund and secure it with, guess what, US treaury bonds. There's plenty of money there, all you have to do is figure out some way to redeem the bonds. Pretty clever, secure our money with our IOUs. There's still a surplus of tax revenue over benefits, all going into the general fund. You have a couple of federal administrations before benefits exceed tax revenue. Then a huge tax burden will be inevitable, whether it goes for assigned social security benefits or social services under a different name. You thought the last two administrations were pitching self-investment for retirement puposes for our benefit?

As Dono and others have tried to point out, we're digging a great big financial pit with no bottom for future generations with our foreign policy going on the national credit card. But hey, wave the flag and live with the current glory.

 

I've never heard that anyone would recieve much of a return on an investment. As previously noted, it's not a retirement savings account as most people consider it. The numbers I've seen show that those who live the longest (white females) can expect to recieve 1-2% more than they put in, while those who live the shortest (black males) recieve 5-8% less than they put in.

I'm sure that SS will be bankrupt by the time I retire, so I'm not too worried about the return on the investment! Too bad, because it's really the only middle class benefit, all the others go only to the rich or the poor.

 

Each person contributes 7.5% of gross earnings for SS, the employer matches that. Medicare is a different contribution. This isn't the exact SS formulas, but it provides numbers close enough for the topic comparison:

50,000/yr average annual gross earnings x 15% = $7500/yr

Age 22 - 62 = 40 years x $7500 = $300,000

SS benefits $1200/mo = $14,400/yr

Age 65 - 80 = 15 years x $14,400 = $216,000

You can scale income, actuary tables, etc. up or down, and this is without interest.

Think what our government could have done for you young people just by putting the surplus in a simple savings account.

If you consider just this example and still believe politicians are looking out for your best interests on other issues, you're either very young or very naive. Take a look at congressional and civil service pensions, that we pay for, and you'll have a stroke.

 

georgedavila



Thanks, Could you depress me any more????

IM only 38, but I do not think that SS will be around when I retire.

 

Sure, why not. We're all in the same boat.

The major problem social security is facing today consists of three primary factors:

1) The 'baby boomers' are starting to retire and they represent a large part of the work force at the higher end of the income scales, in most cases making maximum SS contributions. They'll be replaced with a smaller work force primarily employed in our new service level economy at much lower wages. Less people at lower wages = smaller contributions + higher payouts.

2) When benefit payments and tax revenue streams cross, or reach more benefits being paid out than money coming in is being hastened by more people taking retirement at age 62 instead of 65.

3) Regardless of how SS is structured, as a continuing program, dropped, supplements, etc., the country is still going to face caring for retired people who didn't make enough money to fund their own retirement or didn't care and those depending on lower future tax rates on retirement with untaxed retirement funds (a nasty surprise will be tax rates 15+ years from now), or face chaos. One way or another, you'll have a form of SS and it'll be pay as you go from the government robbing the trust that started Americans relying on the government for retirement purposes.

Our current federal spending binges being funded at 50-year low interest rates will eventually be rolled over and require debt service at normal interest rates. That'll be competing with new debt issues to fund ongoing requirements and those pesky aforementioned social issues, including national health insurance. Not a pretty financial picture.

The opportunity these issues offer is the possible awakening of the American public to the fact that their politicians actually don't care about them in the overall scheme of things. Future tax requirements just might achieve that miracle.

 

Just one question.

Wouldn't it make sense to teach this to our young people, so they can see the impending crunch and take the appropreate steps to secure their own futures? Instead of keeping most in the dark and then smacking them with the unwelcome suprise after it is to late.

 

I have learned my lesson. I'm 26 and i'm taking measures now to insure me and my family can live after I retire. It does kinda suck paying into it every pay knowing I won't recieve a penny from it though. Oh well, this is life.

 

Many Americans, not just the young ones, are far too busy waving the flag to be concerned about their futures or the futures of their children. Instant gratification is the name of the game, forget the costs.

 

What "dark"? It is (and has been) there to all to see, but it requires looking beyond the next payment on that new car - something most have not been taught to do.
Dono

 

Social Security shouldn't even figure into a careful persons retirement plan. (Since it's a tax offset it certainly does not figure into my military plan in a significant way.)
Things to do:
Don't buy new vehicles, enjoy fixing old ones and saving big $$.
Don't buy new houses, enjoy fixing old ones and saving (or making if you have rentals!) even bigger dollars.
Learn to fix nearly everything you live in or use, which is a huge "force multiplier" for your wallet.
Look at a 1920s Audel manual sometime. Back in "the day" self sufficiency was expected.
Have hobbies that overlap job skills. This makes work more fun and enhances your abilities. My hobbies include wrenching on anything, home repair/renovation, and building computers.
Live in or move to a location with low cost of living when you retire if you haven't already done so.
Country living = good.
The nice side of creative thrift is that you can become so efficient that you still get lots of nice toys.

 

Wouldn't argue with that, but you might consider that probably 95% of the population doesn't know a slotted head screwdriver from a Phillips.

 

At some point we will hear, "Sorry folks. We know you put a bunch of money in, but you definately won't be getting it out."

What is going to happen then?



Whistler

 

If you are 39 or yonger(non baby boomer) How do you make up that 7.5% that comes out of your paycheck + the 7.5% that the employer pays ? If you fully vest your 401k you get a small break now but you will be hit hard at the Payoff end. I see these taxes rising a lot in the next few years. The gen x group is pretty much screwed. What the heck can we do to insure that we don't have to work until we are 70+ or dead?