In the last couple of years, several Ponzi schemes have graced the front pages of newspapers and magazines. Bernie Madoff managed to make billions disappear, a few months ago a Chicago commodities trader was convicted of the same and just two weeks ago, $200 million went missing from another firm. The state of the fudiciary agreement between money managers and clients is a whole other issue that must be addressed, but now, I’m going to talk about about a different Ponzi scheme – Social Security.
A Ponzi scheme is define as:
An fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.
Recently, Governor Rick Perry came under fire when he called social security a Ponzi scheme, but isn’t that exactly what it is by definition? After looking at today’s infographic, you’ll realize that the government is doing exactly that – taking money from others to return what was promised to somebody else. At least they admit it.
This infographic is out of date by a few months as far as unemployment goes, but the rest of the information is very relevent. Not only does it illustrate how social security cannot continue on the same path that it’s going down today, it makes other great points in relation to the 99% vs 1% movement.
People have been claiming for years that the rich are getting richer while the poor are getting poorer. There are a lot of factors that affect this metric, but we can easily see that the top 1% (people making over $200k) grew their earnings by $120 billion while the other 1% lost $4.6 billion in earnings last year. Taking into account that you’re only looking at 1% of the population growing their earnings at an exponential rate over the other 99%, this is an amazing number.
The third section, “social security as a percentage of taxable payroll”, is something that must be focused on as well. The large spike that you see in 2020 is the result of the baby boomer generation becoming eligible to receive social security benefits. In 2010, the amount collected from payroll taxes was lower than the amount paid out for benefits – again, scroll up to see the definition of a Ponzi scheme.
This infographic concludes that by year 2036, the $2.5 trillion trust fund that makes up social security will be exhausted. As a result, benefits will be reduced so the government can meet their obligations and continue to pay for benefits going forward. To increase the amount paid, we could always take more from people making over $110,000, but I don’t think that higher taxes are ever the way to go.
On a positive note, I don’t believe that future generations will be stuck without a way to fund their retirements. Social Security may be in trouble, but future retirement plans do not look as bleak. People are contributing to qualified plans such as 401(k)s and Traditional/Roth retirement accounts, more than they ever have before. 401(k)s did not exist until 1978 and they weren’t popular among employers until the mid 80s.
READERS: Who is worried about the state of SS? What do you think we should do to balance the system? If you think it’s fine, why is that?