In this article, we will expose our Government administered Social Security as a very bad financial arrangement for those who contribute funds into the system over their entire working career.
We will go on to demonstrate that by allowing the average citizen to keep their monies in their own personal retirement savings account, most workers could retire as millionaires at age 65.
Is Social Security a Ponzi Scheme?
Let’s take a look at the definition of a Ponzi Scheme to determine if Social Security falls into that category.
A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors.
Clearly, the definition of a Ponzi scheme perfectly describes the current Social Security system we currently have in place. It’s actually much worse than a traditional Ponzi scheme because taxpayers are forced to contribute into the system. Social Security is a government mandated Ponzi scheme.
Just as with a Ponzi scheme, Social Security recipients are paid with revenues collected from subsequent investors. There is no Social Security trust fund, as was promised, because each month, politicians use excess revenues collected from Social Security to fund other Government programs, such as green energy subsidies, entitlements to illegal aliens and corporate welfare, just to name a few.
If any citizen in the United States were to engage in a similar scheme as the current Government administered Social Security system, that citizen would be instantly tossed in jail and convicted of fraudulent activities. Voters must ask themselves a simple question. Why is is a crime for private citizens to engage in this kind of financial scheme, yet it’s applauded and lauded as necessary when the government engages in the exact same financial scheme?
How Do We Fix Our Social Security System?
Interestingly, the solution to fixing the Social Security system is quite simple. The answer is to allow workers to actually own the monies they pay into the system. As it stands now, tax payers contribute to a fund they do not own and they hope they live long enough for the government to dribble out a few hundred dollars a month after age 65, forcing them to live below the poverty level. Let’s run the numbers to see just how bad of a deal government administered Social Security really is.
Inside the Numbers
The average household in America earns over 40K per year but for the sake of simplicity, we will use 40K per year as the average income level. The current (soon to increase) amount of FICA (Social Security & Medicare) tax confiscated by the IRS is 12.4% of your income (6.2% from you and 6.2% from your employer). The average citizen begins their working career at age 21, which gives them a total working career of 44 years. So, the final numbers are as follows: 44 years, earning 40K per year and paying a FICA rate of 12.4%. Let’s calculate how much cash the average citizen would have at age 65, if they were allowed to keep their money in their own savings account.
Assuming a low interest rate yield of 4% on their money, the $400 per month, currently taken by the IRS, would yield $575,474 by the time a taxpayer reaches age 65. If the interest rate were 6%, the average American would have $1,033,706.00 in the bank at retirement. You can calculate these numbers yourself using an online compounding calculator.
Clearly, this is more than enough money to allow someone to live very comfortably in their later years. Another upside is that if an individual happens to pass away before age 65, they would be able to pass those savings accounts along to their family. If taxpayers would simply take the time to do some basic math, they would certainly see that the current government controlled Social Security system they pay into is a very, very bad financial deal and they would be much better off if they were allowed to save these monies in their own personal retirement account.
Financial guru, Dave Ramsey has an excellent video on Social Security.
Kudos should be given to any politician who can look Americans in the face and tell them the truth regarding Social Security. I hope by reading this blog post, everyone understands just how bad of a financial deal government administered Social Security (and Medicare) really is.