Social Security (United States)

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Will Social Security go bankrupt?  Is it a Ponzi scheme?

Arguments for "Yes"

• 2014.08.22 - NomadCapitalist - What the most famous Ponzi scheme in history looks like
  • His tone in this article makes me a bit suspicious.
  • Summary:
    • To this day, the Social Security website brags of the “success” story of Ms. Fuller. After paying a grand total of $24.75 into Social Security during three years of work as a legal secretary, the Vermont retiree claimed $22,888.92 in Social Security benefits before passing away at age 100.
    • like anything else, 100,000% returns can not continue forever. Ida May Fuller may have hit the jackpot, but the returns to other Social Security payees diminished immediately.

    • Today, the Social Security Administration claims funds will run out in nineteen years, in 2033. Like every other set of numbers the government puts out, we can assume those numbers are a lie, also.

    • At a time when the number of Social Security-eligible senior citizens will grow by 50% by 2030, the Millenials are earning less and less to pay into the system.
    • The first step to cover this up will be the “tax the rich” section of the playbook. (...) Considering that only six percent of Americans have $100,000 or more in liquid cash (and that the huge stock, bond, and housing bubbles will wipe out a lot of wealth), it won’t take much for you to be a target.
    • We have a glimpse of the playbook from places like Poland and Ireland, where retirement accounts were confiscated for the “public good”. That’s why I always recommend against saving into a government-run retirement account like the plague. As we discuss frequently, the government can change the rules at any time and force you to move that money into some government bond that is dropping like a stone.
    • The $17 trillion debt the government claims it has, while no sterling record, pales in comparison to the nearly $100 trillion it REALLY owes when you consider all of the debts coming due. The great Ponzi scheme called Social Security is among those.
  • Questions I have:
    • How can we find out if Millenials will actually be earning "less and less", as he suggests?
    • If the burden on taxpayers ever became onerous, couldn't taxpayers vote to reduce the benefits?  At what point (what year), if any, would it be likely that there would be more voters voting to lower the benefits than voting to keep them the same?
    • How can we be sure that what happened in Poland, Ireland, Greece, and Argentina is what will happen in the US?

Arguments for "No"

• 2016.03.11 - WashPo - Paul Waldman - Stop with the zombie lies: No, Social Security is not ‘going broke.’
  • This was pretty useful.
  • Linked to by Nathan J. Robinson of Current Affairs here: 'What if crises like “teacher shortages” and “Social Security going bankrupt” were artificial? What if these ideas were pieces of propaganda designed to persuade people that austerity is inevitable?'
  • Summary:
    • under the worst-case scenario, meaning that a poor economy in coming years deprives the system of money and no changes to the program’s financing are made, then Social Security recipients will find themselves getting smaller checks than they ought to.
    • Let’s remind ourselves how this program works. Workers pay Social Security taxes, which are then distributed to today’s recipients as benefits. But when the taxes (and the interest the program earns on the bonds it holds) exceed the benefits, what’s left over goes into a trust fund, commonly known as the “Social Security surplus.” According to the latest report from the Social Security Trustees, in 2014 the program took in $769 billion and paid out $714 billion. The extra $55 billion went into the trust fund, which at the end of that year contained $2.729 trillion.

      We’re going to need the trust fund, because the very large Baby Boom generation has just started to retire, meaning more people are going to be drawing benefits. The Trustees’ projections say that starting in 2020, the program will take in less than it’s paying out, and the trust fund will be exhausted in 2035.

    • Many people argue that the Trustees are unduly pessimistic about the future, and the most realistic projection is not the intermediate one but the one they call low-cost. And under that projection, the surplus never runs out, and we have plenty of funds to pay all benefits essentially forever, or at least for the next 75 years, which is how far out they attempt to project.

    • There is an entire mini-industry of think-tanks and advocates devoted to convincing lawmakers and the public that entitlements are a disaster in the making, so we need to cut them.

      But there are other ways you could solve the problem, if it indeed turns out to be a problem. You could increase the cap on Social Security taxes — right now you only pay them on the first $118,500 of your income, which means that someone earning below that pays 6.2 percent of their income in Social Security taxes, while a hedge fund manager making $11.8 million pays only .062 percent of his income. You could also increase the tax itself, say by a tenth of a percent per year over ten years, which people would find imperceptible. In other words, you could maintain (or even increase) benefits by bringing in more money.

    • Bernie Sanders’ position is that benefits should be expanded, particularly since so many Americans lack retirement savings. He has proposed keeping the cap, but having the tax kick in again above $250,000, essentially inserting a “doughnut hole” in the tax; he has also suggested applying the tax to wealthy households’ investment income, and not just wages as it is now. Hillary Clinton has a similar, though less detailed, position: she rules out increasing the retirement age or cutting benefits, and wants to raise the cap to some unspecified level in order to increase some benefits.