Thoughtful Thursday – Ponzi Schemes and Social Security

screamMy sis and I were having lunch the other day and got started on the topic of Madoff and the alleged Ponzi scheme he allegedly ran for several years. (Innocent until proven guilty hence the alleged comments.)

What’s a Ponzi scheme? It’s when someone is offered a high rate of return on an investment and the money paid to them comes from other investors and not from any kind of profit made by the company.

So my sis says, “You know who’s got the biggest Ponzi scheme going — the U.S. government.”

To which I went, “Huh?” (I hadn’t had enough coffee that day!)

Carmen, my sister, replied, “Social Security. Think about it. We pay and pay into the system and eventually we’ll get paid from the monies other people are paying into the system.”

Dare I say that both of us added to that comment, “Or not get paid.” Yes, many of us worry Social Security won’t be around when we reach the age where we can collect (which age seems to be getting higher and higher every time we look).

Now, practically speaking, I’m sure Social Security gets monies from other ways, such as interest, taxes, etc., but in general, it’s paying off one set of investors with money from another set of investors. To keep going, it will obviously need lots of other investors out there paying into the system unless some kind of bail out eventually occurs.

What do you think about Social Security? Has it treated you right? If you’re not yet retirement age, are you counting on it being there for you?

My thoughts on this Thoughtful Thursday and looking forward to hearing some of your thoughts on it as well.

5 thoughts on “Thoughtful Thursday – Ponzi Schemes and Social Security”

  1. Thanks to all of you for your comments. I’ve seen the good and bad of SS — from grandmas who’ve enjoyed the benefits to what happened after my mom died which was not enough from SS. Hope you all have a good weekend!

  2. Social Security is Social Security INSURANCE. Insurance is a way to manage individual risk (in this case, the risk of a poverty-stricken old age) by pooling the risks of many. So Soc Sec did well financially in its early days, when most people dropped dead at 66 or sooner. But as life expectancies lengthened, there was no way SSI could keep up, hence the Ponzi-nature of it now.

    (There’s also the controversy that African-American men today still have average life expectancies below 65, so is SSI discriminatory because many AA men pay in but they–nor their heirs–ever see a dime??)

    Most retirees say “I only want to get out what I put in.” Well, I read somewhere that the average retiree “gets out what he/she put in” plus a fair rate of interest about 18 months after he/she retirees. From then on in, his/her SSI payments are being financed by current workers.

    And no, I don’t think I’ll ever see a dime (I’m in my 40s). But I figure that my contributions have financed my mom and dad’s SSI payments all these years. It’s a little fantasy that makes me feel better.

  3. People in the US have the false understanding that SS was meant to provide for their retirement income. SS originated as a form of insurance. By definition, insurance is protection from risk of loss. SS was never intended to be the sole source of retirement income. It’s inception during The Great Depression, a time which simultaneously saw the erosion of the extended family in America, was meant to protect people whose life savings had been decimated by factors out of their control – unknown risk. People were still supposed to save for their retirement. They were still supposed to care for elderly family members.

    That said, I’m not counting on a dime. If it hasn’t gone bankrupt, I probably won’t be eligible until I’m 90 anyway.

  4. I don’t truly believe that I will ever see ss. I’m in my early 40’s.
    What frosts me is that we are limited as to what I can put in my IRA and hubster can put in his 401K. That’s what we’ll have for retirement and we’re being handicapped from the get go.

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