The State of Social Security – Midweek Infographic

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.

social security infographic

This infographic is out of date by a few months as far as unemployment goes, but the rest of the information is very relevent.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?

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Comments

  1. Social security fund outflow exceeded inflow this year, 3 years earlier than previously predicted. It’s a dire state out there.

    • Dire indeed and the conditions are getting worse as baby boomers start receiving Social Security benefits. The current payout rate will eventually flatten out, but the situation may be too bad by then.

  2. JW, it’s been almost a decade since I initially heard about Social Security funds running out. I used to worry about it but now I only trust my own financial investments. I basically expect to receive nothing from SS. First time I had heard of it as a Ponzi Scheme but thanks like it is one.

    Why do earners of $110,000 or more stop paying into SS?

    • I share that same mentality John. I max out my 401k contributions and expect to live on that money alone. If I receive Social Security benefits, great – if not, then that’s what I planned for.

      I’m in favor of a self-directed type of retirement system, but many have tried to pass such plans with no success.

      People who earn more than $110,100 do have to contribute to SS, but only up to $110,100 of their income. The infographic is saying that they should continue to pay SS on the millions they make as well. However, people making a good amount of money should not need the SS benefits when they retire. It don’t think it would be fair if a wealthy individual contributed millions into SS, but only received $25k per year upon retirement.

  3. I don’t know if 401k is the answer. The people that need it the most is not investing. What will happen to those people? Social security is supposed to be the minimal safety net for the working poors. A large percentage of those people don’t have much money saved up. Anyway, we need to reform social security and at least raise the age.

    • I agree that a 401k will not help out those who are unable to contribute to one nor have any funds to contribute. However, they will help the retirees in the future when SS benefits are cut as expected.

      I’m in favor of an elective type of retirement plan. Working in the financial industry, I feel that I should be able to control my own investments and manage my retirement. The yearly return on our money is extremely low because the SS funds must be invested in government backed securities.

      Raising the age of retirement will help. The expected age of retirement should coincide with life expectancy tables – the longer we’re expected to live, the longer we should work.

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