Social Security Not So Much a Ponzi Scheme

We have been hearing criticisms of Social Security as a Ponzi scheme as candidates gear up for the 2012 campaign for President, but the Ponzi scheme criticism is nothing new. To respond to the criticism, the Social Security Administration (“SSA”) keeps a research article on its site, comparing what a Ponzi scheme is to how Social Security works.

The scheme is named after Charles Ponzi who came to notoriety in the 1920s, even though the scheme has been around long before Ponzi. Ponzi was issuing bonds that paid back an exorbitant 50% interest in 45 days, or 100% profit in 90 days. He would take his second round of investors’ money, use that to pay the money to the first round, and then repeat that process. This fraud only works, however, if the schemer can keep getting more and more money coming in.

Social Security benefits – whether retirement or disability benefits – have a least a superficial similarity in that new workers are providing the benefits for the newly retired or disabled. At the same time, though, many private pension systems employ this “pay-as-you-go” system.

With Social Security programs, we should expect there to be years of benefits and deficits with the change in the number of working Americans, though. When there is a large demographic like the Baby Boomers, we will have more people receiving benefits than paying into the system. On the other hand, with the regular population increases, we gradually have more workers paying into the system than those receiving benefits.

Additionally, the SSA can make adjustments to ensure the viability of benefits. These changes are likely coming over the next several years, whether in the form of tax increases or stricter criteria for benefits. A Ponzi scheme, on the other hand, promises huge returns with no goal of ever making the scheme viable.

Perhaps the biggest difference is the intended goals of the two. A Ponzi scheme has the potential to defraud everyone who invests in it. The criminal behind the scheme does not care what happens. Social Security aims for the opposite. It is meant to help retired and disabled Americans through difficult financial times. While it is not perfect, it is a lifeline to millions of Americans. More information on applying for disability benefits is available from a Tulsa Social Security disability law firm.

Troutman & Troutman, P.C. – Tulsa Social Security disability lawyers


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