Is Social Security a Ponzi Scheme?

Published: June 1, 2020 | 9:53 AM ET

By: Ivory Johnson, CFP, ChFC, Founder, Delancey Wealth Management, LLC

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Social Security

Few are willing to risk being lionized for calling social security a Ponzi scheme, rebuked for using the foul language of common sense that most Americans understand. Others might agree with David Letterman, who once opined that “there’s no business like show business, but there are plenty of businesses like accounting.”

Social security was established in 1935 to prevent the elderly from becoming destitute once they left the workforce. In 1940, there were 160 workers for every senior receiving benefits according to the Social Security Administration. Nowadays, less than three workers subsidize each recipient 12.4 percent at a time. In a perfect world, earlier contributions would pay for current benefits, although it’s clear that the money comes from the most recent investors, affectionately referred to as taxpayers.

One could suppose that had previous taxes been segregated for future use as planned, all would be as originally planned. Unfortunately, Congress spent that capital and accumulated $23 trillion (and counting) in debt, $5.8 trillion of which is owed to the entitlement programs. Mitt Romney wrote in his book “No Apology” that if a banker misused the funds in a trust account the way politicians raided the social security and Medicare trust funds they would go to jail. A cynic might describe that as embezzlement, but they’d have a hard time running for president.

A Ponzi Scheme is defined as a system that generates returns for early investors by acquiring new investors. Less than 60 percent of Americans vote in presidential elections, but nobody likes to get swindled. Perhaps if four decades of fiscal and monetary incompetence had been described in its proper context, the United States wouldn’t have $120 trillion of unfunded liabilities per the CBO that the populace suddenly finds so objectionable.

By all accounts, investors have confused fiat currency for wealth, politics for policy and debt for prosperity, a most untimely disposition. After all, a man who buys a brand-new Porsche for $1,000 would have few sympathizers the next morning when his car didn’t start.

Considering the dubious financial predicament we now find ourselves in, diction is the least of our problems. People say all kinds of crazy things, but this is worthy of debate. For example, if the principal from yesterday’s investor is available for today’s social security payment and there’s little need to access current cash flow to satisfy promises made in the past, then fine, maybe we should all celebrate — just show us the money before we order more wine.

Ivory Johnson, CFP®, ChFC
Delancey Wealth Management, LLC
20 F Street, NW, Ste. 750
Washington, DC  20001
(202) 507-6340

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