The Social Security Ponzi Will Fail Sooner Than You May Think

By Joshua D. Glawson | United States

What is a Ponzi scheme?

According to Investopedia, “A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. For both Ponzi schemes and pyramid schemes, eventually there isn’t enough money to go around, and the schemes unravel.” In order for the Ponzi to continue, the crook requires more money and/or more people investing into it; without these, the scheme will go bust, which means no more income from this steady stream for the company conducting the Ponzi, and of course no money for those that have already invested.

How does Social Security work?

The Social Security and Medicare program is also known as the Old-Age, Survivors and Disability Insurance Program (OASDI). A total of 12.4% tax is taken from every check split between the employer and the employee. This money is put into US Treasury bonds and cycled through to pay out those that are claiming benefits while annual surplus can be used to pay for other government programs and spending. When Social Security was first made for the vast majority of people to opt-in, the ratio of workers per persons receiving benefits, as of 1940, was 159.4 workers per person receiving. By 2013 that ratio was 2.8 to 1. So, in order to maintain the program, an increase in taxes will be necessary, and/or fewer benefits received depending on the number of people they get to pay into the program.

This could have a major impact on immigration, as well. If Americans are having fewer children, in order to keep the OASDI program alive, it is quite probable that by allowing more immigrants into the country, Social Security will have more funding. If not, it is predicted Social Security will exhaust somewhere between 2027 and 2034. Start investing and saving at a higher rate if you are thinking of retiring during or after that time, just to be sure.

Who is benefiting while Social Security exists?

For one, there has always been some reason to believe that the US government is borrowing funds from OASDI. For example, in 2011, Obama’s budget director, Jack Lew, said within the month of August, they may not have had the funds to payout although the Social Security account was to have $2.6 Trillion USD in it. This is not the first time, nor last, of evidence that suggests the government is siphoning from the reserves.

Equally, the program employs many different people and helps to fund other programs and industries. It also directly benefits the elderly who are continuously more apt to vote than any other demographic. In short, Social Security is plundering from one group of people, i.e. those working, and paying another group, i.e. the retired and disabled. As all Socialist and Communist programs, they are destined to fail from their onset, while robbing from one group to give to another.

Surely, people can opt out-out then, right?

As researched by investment author Troy Segal, “Certain religious groups, students, U.S. citizens who decide to forfeit their national citizenship, employees of foreign governments and self-employed workers who make less than $400 annually are all examples of taxpayers who are not responsible for paying Social Security taxes.” So, it is very difficult to get approval to opt-out of Social Security and Medicare. Perhaps you can pay into it, but choose not to receive the funds and benefits.

Social Security is “good,” though, right?

This is key to what makes Social Security and Medicare, along with many other tax-funded programs, so bad. Nearly everyone that works is coerced into paying into the destined-to-fail program with no guarantee of receiving the money back or the expected benefits. A typical Ponzi is voluntarily coordinated, while the Social Security Ponzi is by force, all in the name of “what is for your own good,” and “to help the elderly, retired, and disabled, because without this program they have nothing.” Never mind that an individual should be making the best determination for what is best for themselves; and if someone is forced to do what is “good,” whatever “good” they are doing is only out of coercion and no longer a good deed done. ‘Good’ must be voluntary.

Well, at least Social Security is a ‘right,’ correct?

According to a 1936 US Social Security pamphlet issued by the government, on the first page it stipulates, “The checks will come to you as a right.” Yet, in 1960, the Supreme Court determined in the case of Flemming v Nestor that Social Security benefits were not a right, even though Mr. Nestor had paid into the program for 19 years and was already receiving benefits. He was denied benefits because he was a member of the Communist Party, and according to a law passed in 1954, Social Security benefits were to be denied to persons deported for, among other things, having been a member of the Communist Party. Quite ironic that a Socialist program would be denied for Communists. Of course, today, one’s political affiliation would not be grounds for denying Social Security benefits although the Communist Control Act of 1954 was never officially repealed, but the Nestor case proved that the US government can change their side of the contract at any point with a simple vote or court case affecting everyone else.

Social Security is a sound investment because the US government has top-level economists that say so, right?

Well, let’s take a look at what the Social Security Trustees Report says, specifically:

  • “As indicated in the 2009 Trustees Report, the 75-year shortfall projected under intermediate assumptions for the OASDI program could be met with benefit reductions equivalent in value to a 13 percent immediate reduction in all benefits, an increase in revenue equivalent to an immediate increase in the combined (employee and employer) payroll tax rate from 12.4 percent to 14.4 percent, or a combination of these two approaches.”
  • “Projections of cost and income for the OASDI program are inherently uncertain. This uncertainty is thought to increase for more extended periods into the future.”
  • “With the average worker benefit currently at about $1,000 per month, 3.3 workers would need to contribute about $300 each per month to provide a $1,000 benefit. But after the population age distribution has shifted to have just two workers per beneficiary, each worker would need to contribute $500 to provide the same $1,000 benefit.”
  • “Thus, in order to meet increased Social Security costs, substantial change will be needed. The intermediate projections of the 2009 Trustees Report indicate that if we wait to take action until the combined OASDI trust fund becomes exhausted in 2037, benefit reductions of around 25 percent or payroll tax increases of around one-third (a 4 percent increase in addition to the current 12.4 percent rate) will be required. Past legislative changes for Social Security suggest that the next reform is likely to include a combination of benefit reductions and payroll tax increases.”
  • “Social Security’s total cost is projected to exceed its total income (including interest) in 2018 for the first time since 1982 and to remain higher throughout the projection period. Social Security’s cost will be financed with a combination of non-interest income, interest income, and net redemptions of trust fund asset reserves from the General Fund of the Treasury until 2034 when the OASDI reserves will be depleted. Thereafter, scheduled tax income is projected to be sufficient to pay about three-quarters of scheduled benefits through the end of the projection period in 2092.”

Are there any solutions to the problem besides adding more people or taxes to Social Security?

Most financial advisers have noted that the average return on investment in the stock market is around 8% annually. The best bet is to not only vote for ways of completely ending Social Security through a transition period allowing those already on it or about to be on it to receive their benefits, but also simply investing in the stock market, although I am not a financial adviser and you may invest at your own risk. The Cato Institute proposed allowing people to roll over the money they already put into it towards a private investment fund such as a traditional IRA that would be tax-free.

Once Social Security is ended, it will strengthen communities because people will be more conscientious of their spending, saving, and investing, while families and friends will see the positive impact of voluntarily helping those in need. The more we put between ourselves and those in need, such as through government programs, other people, etc. the less we are concerned with those in need. In the end, the best solution comprises of personal responsibility and allowing those that wish to voluntarily give and help to do so without imposition.

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4 thoughts on “The Social Security Ponzi Will Fail Sooner Than You May Think”

    • Ah, ok, I see the confusion. This is a highlighted example of rejecting force and the core issue of Socialist programs, i.e. the use of force which negates any “good” done. It does not in any way suggest not helping people. People will always help someone else. Helping people should not require force, however. This highlighted section also links to another article I have written that delves into the problems with social security in the US, along with direct citations and quotes from SSI themselves. Please feel free to take a look at it. Thank you.

      In Liberty,

    • Thank you for reading the article and wanting to research more. Yes, the links are set as hyperlinks in the work. Go to the section and click on the bold and underlined words for the citation links. If you have any difficulty, the one you are requesting is the following:
      Thank you, again. If you have any other questions, please feel free to ask and I will respond asap.

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