Social Security as a Ponzi Scheme

[Physics_wiz]

Is this true? I heard someone talk about it and it got me pretty interested. I just never made the connection between social security and ponzi schemes. Thoughts?

 

[Pengwuino]

http://en.wikipedia.org/wiki/Ponzi_scheme

According to that, not really. The difference as far as i can tell is that there are REAL investments going on in the social security system by means of bonds and government securities and things like that. This ponzi scheme seems to have no real investments going on and only faking a "profit". Plus of course, social security is not meant to generate a profit, it's only meant to take money while you work so you will have it for when you're retired and not working. Kinda like a forced IRA

and haha... beautiful, shows the value in reading the entire article. I guess they have their own explanation of how it relates to a Ponzi scheme that is more informed then my opinion.

 

[BobG]

Is this true? I heard someone talk about it and it got me pretty interested. I just never made the connection between social security and ponzi schemes. Thoughts?

If the number of workers in the workforce and the number of retirees stays constant, then, no, the Social Security System is not a ponzi scheme.

The simularity is in the fact that the money current workers pay in goes to current retirees. The money that will pay current workers in their retirement will come from future workers. The difference is that the benefits are still tied to a worker's own earnings, regardless of the amount of money people are paying in.

When fluctuations in population are thrown in and increased life expectancy is thrown in, the overall results could look like a ponzi scheme - if the program hasn't been managed well. In other words, there will be a period of time when the worker to retiree ratio is exceptionally low.

The Social Security System, itself, may have been investing the surplus income its been taking into ease the impact of when the baby boom generation retires, but its investments have been in government bonds - meaning the Social Security System has been lending money to the rest of the federal government, which the rest of the federal government has spent.

Bottom line is that the federal government as a whole (SSS and other brances) has a lot of money that will have to be paid out while the number of workers paying all federal taxes (SS and federal) declines. Thinking Social Security benefits will be paid out at the same rate they are now through that period is believing in ... Santa Claus?

Paying a lot in Social Security taxes and receiving a reduced return in retirement benefits has a result similar to a ponzi scheme for those in the baby boom generation.