The Social Security Administration actually calls the program a "pay-as-you-go insurance system"

More accurately, it's a "pay-or-go-to-jail insurance system".

Why do you think they fought Bush so hard over the Private Accounts you could put part of your Social Security in???

My parents both died just before they were able to collect the first dime and made enough that they paid the Maximum into the system all their lives.

I figured out that if even Bushes 2% had been put into a Private account over their lives and into a stock market mutual fund the account would have had over $250,000 in it.

But if you can actually look at an account with your name on it and see it grow over time it suddenly is "Yours" and the government can't allow that...especially because you want to leave it to your heirs..or god forbid the heirs see how much they Would Have gotten.

Every dime my parents paid in was lost even to them because they died before retirement age and the government keeps all the money.

And just wait...as the insolvency deepens they will look to tax any source of revenue they can....and where will the money be then...Why in ROTH IRA's!!!!

Don't ever believe that they will always remain Tax Free!!!!!

In the post she said "This means that young people like me probably cannot count on solely Social Security for our retirement."

Social Security was always meant to be an addition to personal retirement savings or pensions. So many people have come to believe that SS will be there to meet all their needs in retirement, when it just wont cover everything.

So, now with most employers no longer offering pensions, it is vital that we are all investing for our futures in Roth's or traditional accounts.

Another thing to consider with SS is the vast numbers of people needed to keep paying into the system to keep benefits at current levels. When the baby boomers start retiring en masse in the next 7-10 years, there will be a big drain on the entire system. Take away the 48+ million future contributors to SS that have been aborted the last 30 or so years, and you can see one of the factors eroding the entire SS system.

There is a big misconception about Social Security. It is supposed to be a social safety net, not your personal retirement program.

Most developed countries have some form of social safety net to keep people from living in the streets eating cat food in large numbers. There are also more components to Social Security than just retirement. There is social security disability and SSI payments. The disability is there for people that exhaust all of their other benefits if they become unable to work. SSI works as a supplemental income source for people who qualify for SSD.

People should have something more than social security for retirement.

As an X-er, I see that Social Security will absolutely NOT be there for me.

Those in the Boomer bracket voted to get the system to "work" for them when they carried the controlling numbers of voters.

When I near the appropriate age, if the system hasn't already gone bankrupt, you can bank that those younger than me- with the higher number of potential voters per the US census dept- will be voting to turn it around in their favor.

I don't want to sound like "woe is me"- I am such a victim-- because knowing this, I can plan accordingly and not be a victim.

I totally agree that there is an issue to remedy, and many people assume that the consequences of not doing anything will only be felt in their retirement years.  But what about the other aspects of social security benefits  (disability, death benefits, etc.)  Many of us could be eligible for these payments way before the retirement age.

You can't assume that you will have time to adequately save for retirement.  If you were to become disabled or a survivor of a benefit-eligible death payment, you would want what you're entitled to.  But it may not be there. 

yes, it is. they take it out of our paychecks but it won't be there when we retire. my statement says on the bottom that when I retire, as the assend of the boomers, I will supposedly get 70% what i put in. that's why we have to save and invest all we can, along all categories (see www.thecoffeehouseinvestor.com )
If we take care of ourselves...well, don't count on the govt.

Social Security isn't about you putting money aside for your retirement. It's for everyone to put money aside for *everyone's* retirment. Because, guess what, not everyone can afford to put money aside for retirement. Think about the guy who worked as a janitor for his whole life. Making minimum wage or a bit more. Raising a couple of kids. He barely keeps a roof over his family's head. Where does he get money to invest in retirement? Once upon a time, he worked for the same company for 40 years and at least had a pension. Any more, he doesn't have that...social security is it for him and his wife.

Boohooo, waaah...you're not going to get everything you put into Social Security back out again. But someone who really needs it will.

Now I agree that the rich have no business drawing social security. I think it should have an income level tied to it. I also don't think there should be a cap on how much you pay into the system. But then, I'm just a secretary, and I'll never approach the cap, anyway.

But I do think there should be some protection out there for the people who spend their lives doing the dirty grunt work that none of us wants to do.

And, unless you're self-employed, you don't pay 12%, you pay 6%. Your employer pays the other 6%.

If we were to privatize social security, what happens when the stock market tanks? Do we tell the poor elderly, sorry, you can't eat this month? Pay your rent? Buy your meds? Again, social security isn't about one person funding their own retirment. It's about all of us working together to take care of everyone else.

The late, great Molly Ivens suggested that folks' SS checks be printed in red once they had exceeded the amount they had contributed so they could understand that they are, in fact, receiving welfare.

One thing that hasn't been mentioned that will mitigate (to some degree) the boomer drain on SS is that many, many boomers will be working (and contributing to SS) beyond their retirement age, due to inclination or low savings.

I hope not to need to depend heavily on SS, but I am glad it is there for my parents. And to those who feel exploited by those boomers taking all the benefits, wouldn't you prefer that they get SS instead of moving in with their children/grandchildren? (Or have you moved out of their house yet?)

I love the comparisons you made between SS and a Ponzi scheme. People talk about these factors as if they redeem the program from being an actual Ponzi scheme, but in fact, they show that SS in in every way worse than a Ponzi scheme.

Explanation:

-SS makes no claims about making money fast. Of course, they don't have to. Since you're forced to put your money into SS, there's no need to advertise anything.

-SS makes no claims about investing your money, so it's not actually fraudulent. See comments on previous point.

-SS is not a voluntary scheme. A Ponzi scheme is. I don't see how this makes SS better. The one plus about a Ponzi scheme is that you could choose not to go along with this form of robbery.

-People who die before they collect their full SS benefits don't receive their remaining benefits. This might help prolong the scheme for a little longer but it sucks for those who have paid into the thing for their entire lives to gain nothing to leave their survivors for it.

I read somewhere along this thread that SS is not a retirement plan, but a safety net. Nobody is expecting SS to be a government-funded retirement program, but it's not a very effective safety net either. I am 30 and by the time I retire, by SS benefits will be zip. I would have had a better 'safety net' by putting that money in an IRA or a trust fund or even the latest Ponzi scheme.

Yeah, like the janitor, who might even have two jobs, is going to spend time reading a stack of prospectuses for his retirement investments. The examples presented are just exceptions that prove the rule -- most people aren't good at investing.

Frankly, I would like it if I could get that legendary CalPERS pension. I hate researching for my retirement.

I like that Social Security exists, and is basically a welfare program, because it is a very necessary one. Life before Social Security and Medicare was a lot worse. Old folks not only lived in poverty, some committed suicide.

As for SS running out of money - it will be adjusted for. I understand that's already happening. The SS system is fundamentally a way for the young and able-bodied to pay for the needs of seniors. There are aspects of it that are like a savings plan, but, that seems to be more of a score-keeping system to establish the amount of your entitlement more than anything else. The core of the program is to mitigate the problem of widespread poverty among people who cannot work in the marketplace due to age or disability.

What is wrong with that? It seems like a very civilized, humane task: one that government is supposed to perform.

Sure it's a Ponzi scheme, when you realize that it relies purely on demographics and there aren't enough legal working suckers to pay in right now. There is no "insurance" component as the funds are not invested, unless you call the US government T-bond IOU's an investment. It's also designed as yet another welfare program so that poorer taxpayers get more than they put in, compared to the rest of us.

@xin lu, so you're saying that the millions of people who are paid little money, or lack the acumen, experience, or family knowledge to plan their own retirement are "lazy and irresponsible"? Perhaps they are, but, I think they should be cut some slack. Having a $10 an hour (or less) job is bad enough, and if they have kids, they may have to work two jobs and don't have time to deal with a wide range of investment choices.

The CalPERS pension performs well and is steady. It's a good balance to riskier IRAs and 401Ks, does better than other stable investments, and is probably doing better than index funds these days.

I'm lazy about investing and like a set-and-forget style. All this choice we have - it annoys me more than anything. So, yes, I like the government taking care of things for me. I like them to take care of the sewage system, the forests, roads, libraries, indigent people, and numerous other things. I also like them to take care of old folks, and wish they would do more about homelessness.

@bill: As for Warren Buffet getting SS - fine with me. That was the deal offered - everyone pays in, everyone gets something out. Some people get back less than they paid in, others get more. Buffet's just one extremely wealthy guy, but the millions of others receiving SS are not wealthy, and many are low-income. Having a single system that's not means-tested helps create a sense of unity and mutuality.

If you really do want to do more means testing, why don't we introduce toll gates everywhere, libraries for the poor along with pay libraries, and means tested public school too?

...there are still 30 million Americans living in poverty. That's nearly 10% of the population. The situation is somewhat better among seniors, but not a whole lot. So again I ask, what problem has Social Security solved?

The problem that it's avoided is 10% of Americans living on the streets and 15% on top of that  living in poverty.

@Bill. The sense of unity is partly for "patriotic" reasons, but also to build political support for the program. Once you introduce means testing, you set up the political situation for opposition to the program from people who aren't included in it -- meaning the workers and investors with the most money. The people who benefit most from SS, who are the poor, mentally disabled, and people working in low-skill jobs, are less likely to vote, and do not contribute to political campaigns. Over time, SS would become an underfunded welfare program resented by the middle class.

As for eliminating poverty - frankly, your argument is hollow. You can't be Milton Friedman, Ron Paul, LBJ, and FDR at the same time.

Then again, if I read between your lines correctly, you don't want to eliminate poverty. (You say if "we" want to eliminate poverty.) You just want an argument against Social Security.

Because, frankly, a good way to eliminate poverty would be to expand Social Security, and also create some quasi-mandatory savings plans along the lines of FSAs or education IRAs. Explanation below.

@xin lu. My mom was basically a poor person who saved money. She did it when the market for financial instruments was more regulated than it is today, and she did manage to save money for retirement, and not lose out too much to inflation. So, my personal experience is that it's possible.

However, I also see my low-income peers cannot save money, and some high-income peers who will only be rescued by the fact that their job has a solid pension (because they cannot save money due to lack of fiscal wisdom).

Today, due to the growth in choices, it's simultaneously easier and harder to invest. It's easier to set up online accounts, move retirement money into different instruments, and so forth. At the same time, returns on "safe" investments seem to be lower compared to inflation, so, to stay afloat, you have to research to invest. Due to deregulation, there's pressure on banks and investment firms to sell riskier products.

It seems this growth in choices, and the erosion of pensions, puts the fiscally unwise at a severe disadvantage. I think it even depresses wages for poor people.

Wages in the working class are set by the cost of living -- that is, when they feel the pain of inflation, they're more likely to seek other work or ask for a raise, so the employer might respond by raising wages. In the absence of labor unions who negotiate more favorable contracts (by trying to negotiate a wage based on profit margins and by establishing pensions), or a very poor local economy where the minimum wage is the wage floor, it's the cost of living that determines wages for the poor.

The fiscally unwise tend to spend all the money they can put into their pockets (or bank account), saving little or nothing for the future, or, going into debt. By putting retirement decisions in the hands of these poor workers, within which there's a large population of fiscally unwise individuals, you will tend to depress wages because you delay the day when they must try to seek more work or ask for a raise.

As for eliminating poverty - frankly, your argument is hollow. You can't be Milton Friedman, Ron Paul, LBJ, and FDR at the same time.

I reject your false dichotomy. Just because your mind is to small to accept it does not mean it's impossible. This single statement demonstrates your blind partisanship seriously hinders any kind of rational thought.

Then again, if I read between your lines correctly, you don't want to eliminate poverty. (You say if "we" want to eliminate poverty.) You just want an argument against Social Security.

See above. I can only state my position. If you take it and read more in to it than is there and twist it in to what it's not, well... I certainly can't be blamed for that.

Because, frankly, a good way to eliminate poverty would be to expand Social Security, and also create some quasi-mandatory savings plans along the lines of FSAs or education IRAs. Explanation below.

That's exactly the sort of nonsense I expect from people like you. It's not working, so let's spend more money! More money is always the answer. Just ignore the fact that we're already spending more than it would cost to completely eliminate poverty. The fact that the money we're already spending isn't targeting the right people is completely irrelevant. Ignore efficiency issues. Just spend more money. Heaven forbid Warren Buffett should forgo his Social Security check.

Last thing first - Social Security is not failing.

Yes it is. Social Security is a failure. Despite 60 years of ever-increasing taxes and ever-increase base, Social Security has not even manged to solve the problem of senior poverty. The overall success rate of anti-poverty measures in the United States is 45%. This, despite annual spending of $1.5 TRILLION. I don't know about where you come from, but in my class, 45% is a F. That goes double when 100% success is achievable by spending less money.

Furthermore, Social Security now guarantees new workers (those who started working after 1990) a negative rate of return. Given the higher tax rate and retirement age, the average worker simply cannot get out more value than he puts in. It is mathematically impossible. It's like the 3 laws of thermodynamics: you can't win, you can't break even and you can't even quit the game.

We have many, many years to adjust it.

And by "adjust it", do you mean raising taxes and/or cutting benefits? That will make Social Security and even WORSE deal for workers. Yay. Let's do that.

I've read the articles portending its collapse

I see you have not stopped putting words in my mouth. Bully for you. I guess that's what you must resort to when your argument has no merit. I never said that Social Security is in danger of collapsing. Social Security can be made to last indefinitely through further tax hikes and benefit cuts. It doesn't take a PhD in math to realize that.

The problem is that Social Security is a RIP OFF. It costs more than it would cost to completely eliminate poverty and it guarantees a negative rate of return for workers who pay in to it. But I guess that, since it's "politically feasible", that makes it worth while. Racism and sexism were once "politically feasible", too. That didn't make either one good.

Lucille, you were the only one to bring up SSI and SSD. Very good, as you struck the Main Vein of the MotherLoad of all draining Entitlements.
In my area, Shasta County, the amount of SSI beneficiaries is Ssssttttaaaaggggeeeerrrriiiinnnngggg...
I would say, 80% of the residents of this County.
Look on the 1st of the Month. Do you see around you a mega-tude of people with Handicap plates and placard hangers? Most likely they are SSI.
SSI in California now pays $888 an individual. That hardly happens, as every person within the household of an SSI is paid SSI.
Say Dad qualifies for SSI at 22 years old. He's worked 6 months out of his life, maybe never worked at all.
He goes to the Social Security Administration Office and files a claim for Disability.
Social Security determines that Dad has NEVER worked a single day in his life, but that he has enough Medical paperwork that says 'He's Depressed'. Ok, so Social Security has Dad talk on the phone to a physician that asks questions for a little while as part of the form that is filled out, and Dad is Depressed to the Social Security physician. The physician get's a percentage of money to have done the Social Security screening and goes off happy with money and Dad is qualified for SSI because he never worked before a day in his life.
So Dad, and his wife who also never worked before and is 20 years old, both get a check. Combined in California they get $956 a month or real close to that.
Dad and spouse have 2 kids already, so they each get a check each month.
Over time the kids reach 18 and before they turn 18 they are determined to have ADHD by MediCal physicians and school personnel that gets extra money for qualifying them for 'Special Ed' IEP.
So as the kids turn 18 they get a check for $888 for the rest of their entire lives.
Do you see what's going on? And this is something EVERYONE is missing.
The illegals will become legalized, I have no doubt of that. As of today Feinstein has an AG extra attached to the Military Funding Bill. She wants more new Mexicans to be shipped into the US to pick lettuce.
That's because as soon as they get here on an AG Visa they run AWOL into cities and towns. The women go onto welfare CalWorks and EBT, low-income rental assistance, Section 8 Vouchers and HUD housing, and the men work Construction under the table.
That's why we need more Ag workers and will again next year if Feinsetin get's her way shipping more AG workers in this year to pick.
As soon as the Comprehensive Immigration Reform is passed in early 09' or soon after especially if we have a Liberal Democrat in the Presidency, that makes the newly legalized citizens or semi-citizens or whatever they will be called, Entitled to SSI!
That also means their elderly parents can be brought in from Mexico of El Salvador or wherever down there, and are Entitled to SSI also.
Their cousins, aunts and uncles that also live with them and their entire generational family will all be Entitled to SSI, because of one man, head of household.
That's alot of checks-in-the-box. Add it up.
And there's a rule in SSI. The recipient can OWN ONE HOME FREE AND CLEAR OF ANY VALUE.
That means that if Man, head of household own's a $500,000 home with 10 acres, he can collect, SSI.
I know a person exactly like that. You wondering how they could afford a $500,000 home? Inheritance.
Yes, an SSI can inherit real property, paid for, free and clear and keep it.
They will also qualify for low-income homeowners Property Tax Assistance. At the end of the year, after they have paid their property tax's. They will get back 95% of those property taxes.
Now, here is the Root of the whole problem with SSI.
Social Security Retirement beneficiaries pay taxes out of their checks.
SSI pays not a single penny of taxes. It is completely tax free. No tax at all.
This system, SSI is a complete DRAIN on the taxpayer and collected tax dollars that makes Social Security run.
Draining more and more each year. Each year the statistics show that more and more and more SSI's are applying and getting SSI.
More and More for 'MENTAL OTHER'. Like ADHD, Depression, Bi-Polar, Meth Addiction.
Oh the Social Security Administration says right on their site. They do not pay people to be cronically DRUNK. No, but if you are an ADDICT to Alcohol or Meth, and you cannot kick the habit. Or, you are loosing your teeth from the ravages of Meth, or your skin it turning yellow from Alcohol you can collect SSI.
I know tons of people in my tiny town in the mountains and ALL are on SSI.
All live month to month on SSI ONLY. They ALL inherited their property and live hand to mouth on SSI.
They are all a lazy pitiful bunch of completely worthless people.
Some are kids under 18. Some are in their 20's and were on SSI under 18, and continued into the rest of their lives on SSI. Some have been on SSI since 1974.
It's a TAX FREE GRAVY TRAIN, and in the Bum World they have PhD's for 'Swindling and Milking the System'.
I have absolute faith, and no doubt at all, that SSI will cause Social Security Retirement to go flat broke by 2012, after the Amnesty or whatever they are calling it today.
Better do like me, plan to live in a Cobb House on a little plot of land, growing your own food and living very low, as the SSI's are going to have drained the life out of Social Security at the pace they are now.

Bill, SSI is anything BUT honest!!!!!!!!!!
It is full of crooks. The people that collect SSI are crooks, the physicians that qualify the SSI's are crooks!!
There's nothing good about SSI unless it is for REAL disabled people.
Problem is Bill, that it (SSI) is paying people to sit eat and watch TV all day, get drunk, tweek out on Crank-Meth, and be as worthless to themselves and society as possible.
And if you think for a second that only the Wealthy pay for SSI, that's just a fantasy from your delusional mind Bill.
SSI will bring down everything.
It's a destroyer, not a helper honest Welfare system.
I cannot wait till' it's broke.
I want to see all the lazy people that lie to get a SSI check and have a Kegger party when they get qualified and recieve their big lump sum check in the beginning, I want to see them have to actually do a days work to have a meal, probably for the 1st time in their useless lives.

So why is Social Security not a Ponzi scheme?

It is; so you're already incorrect. A ponzi scheme is marked by HOW it does what it does, not by the claims made by/about it, or whether or not it can be avoided.

The rationalizations identified here are the same ones that [surprise!] litter the Social Security Administration's weepy, weepy website in response to all the [justifiable] criticism of the ponzi scheme they operate. They could claim plagiarism, only their own rationalizing words are so embarrassing, I strongly doubt that they'd take it to court

first of all it does not make wild claims about making money fast

Irrelevant.

It also does not claim to be investing your money so it is not actually fraudulent

Also irrelevant.

These last two items together are the difference between being robbed by a guy at gunpoint versus being robbed by a guy who promises to re-roof your house after a hailstorm and skips town with your newly-cashed check. Social Security is the guy with the gun. Frankly, that's not an improvement.

It is also based on taxes so it is not a voluntary scheme like the original

Payroll taxes, which means that if you don't work you don't pay. A meaningless quibble

when a person dies then the payout stops under Social Security so it is possible that some people who contribute never see a single penny returned

If old Chuckles Ponzi had been able to keep his juggling act going for a few more years, he would very likely have had one of his "coupon" holders die on him, ... and the coupon would then have become part of the dupe's estate, and an heir or assign would have tried to collect on it ... just as "survivors" can collect on a cadaver's SocSec Bennies today.

This is another meaningless quibble.

The Social Security Administration actually calls the program a "pay-as-you-go insurance system"...

The folks who work for them are idiots; what do you expect? This is as idiotic a redefinition of reality as you can find.

"Insurance". Good god!

If it were "insurance" then the payments would be called "premiums" and would be based on an actuarial evaluation of an individual's likelihood of actually collecting: the more likely you are to collect, the higher your premiums.

And as such, women would pay [significantly] more than men, and "certain ethnicities of Asian" [screw PC; let's be specific here: Orientals] would pay more than whites, and whites would pay more than blacks. Because on the longevity-scale -- which is ultimately what we're talking about here -- the longer you are statistically likely to live, the greater chance you have of collecting SocSec bennies, and the more you would pay in taxes when you "contribute"...

...IF IT WAS INSURANCE.

But it's not. Which means that their equivocative descriptions are entirely hooey, and meant to appease the simpletons.

Regardless of the semantics, in the near future there will be many more retirees than working folks so the demographics shift will make Social Security pay out more than it takes in.

Bingo. And you've just answered your own rhetorical question, albeit in the way you didn't want to.

This is EXACTLY what makes a ponzi a ponzi: the necessary geometric progression of "investor"/taxpayer to recipient, the inability of the real world to sustain that geometric relationship, and the ultimate collapse of the thing.

Another term for this is "pyramid scheme". A ponzi is simply the most well-known pyramid scheme; they are all essentiall the same: they rely on an unsustainable financial model for viability.

But perhaps the most damning bit of evidence hoisting SocSec on its own petard is this:
If you were to implement a pension plan for the Xin Lu Corporation based on the Social Security Financial Model -- current employees fund current retirees' retirement income, with "excess receipts" being channeled back into corporate bonds -- the SEC [Securities & Exchange Commission, at least I believe that's the group; "government regulators" at any rate] would be all over you like pork fat on a Mississippi barbecue for operating a financially fraudulent pension plan. You'd be charged with financial crimes from RICO on down.

Why? Because despite the flowery rationalizations the government throws out in order to convince us all the SocSec is a fine, fine program, they know very well that it's not. They just hope to keep the juggling balls in the air long enough that some "wisdom of the future" can fix it all.

Maybe if you are only making $10.00 an hour, low to no benefits etc YOU SHOULDN'T BE MAKING BABIES YOU CAN'T AFFORD!

Give me a break, it is Econ 101 for God's sake.

Social Security is just Socialism with lipstick, take from one demographic and give to another and there are many in this SCHEME.

I keep hearing far-lefties (I'm a registered Democrat myself) say that the system is not bankrupt...but they never explain why or how the system will remain in tact without raising taxes or cutting benefits, or even that it will remain in tact. let's pretend the system is a see-saw. on one side, you have 6 people paying into a system, and one person collecting, which you had during the baby boom. NOW, eventually, you will have 1 person paying into the system and 6 people collecting. theoretically, it is not sustainable. there is evidence that Bush lied, but not enough to convince me that the system is sound.