Social Security – Entitlement, Ponzi Scheme or Something Else?

by Kay Lynn

Social Security Card - Illustration

One of my co-workers retired a few weeks ago.  We had worked together for over 15 years and it was both exciting and sad to see her go.  As the retirement luncheon ended and we had a final hug, I was thinking about my retirement and a big question.

What will social security look like when I retire?

Retirement Saving History

I know a lot of people say they don’t count on social security when planning for retirement.  I understand that and would agree if I was just starting out.

When I joined the labor force in the 1970’s, the 401k or 403b didn’t exist.  These began a decade later and weren’t common until the 90s.  It was a transition time from defined pension plans to self-funded plans.

I started contributing as soon as the option became available, but by then I’d been working for 20 years.  As a single mom I didn’t save nearly enough but I did contribute no matter what.

One constant payment for my future has been the Federal Insurance Contributions Act (FICA) tax.  My employers and I have have paid a nice percentage of my income into this account for decades.  Now, you say I can’t count on it?

Politics and Social Security

I would guess since it’s inception, politicians have been tinkering with the Old-Age, Survivors, and Disability Insurance(OASDI) program which we call Social Security.  As the government struggles with an inflated budget and deficit, it’s being looked at as a entitlement program.

I can understand that to a degree.  The original program has been amended to include a lot more programs and benefits than originally envisioned.  However, workers have been contributing to this retirement plan for over 80 years and are due payment.

A recent campaign claim is that Social Security is a Ponzi scheme.  If you don’t look deep, it might seem that way.  Since funding can be increased with tax revenues, it doesn’t meet the definition.  But the true argument against that line of thinking is that it’s really an insurance plan.

Future of Social Security?

With only a decade to go until I can start collecting on my retirement contributions, the rhetoric makes me nervous.  There are too many people who don’t look below the surface of what is being said.

I’m hoping there’s someone with a fair and reasonable idea on how to move forward with this program so it can be there for me and future generations. What do you think about Social Security?

Photo: Some rights reserved by DonkeyHotey

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cashflowmantra September 13, 2011 at 6:42 am

You are right about the fact that it should be there for each individual. There is no reason that I shouldn’t at least be able to receive what I put into the system. It essentially amounts to 15% of income paid in over a working lifetime. Therein lies some of the appeal of privatization. I have no idea what will happen, but I am not planning of Social Security and will make my calculations without it. If it happens to still be there, it will be like found money.

Justin @ MoneyIsTheRoot September 13, 2011 at 6:59 am

There has been a lot of talk about the young people of today, and stabilizing social security for us in the future…quite honestly, that is nice and all, but I worry more about my parents than myself! As youve said, 401ks werent common for many workers, especially not like now.

20's Finances September 13, 2011 at 7:42 am

I agree with CFM, that I don’t count on it. If it is still there in 35 years, then great. It will allow my retirement accounts to grow with less being pulled out each year. I think it will continue though. It is just so hard to see people not fighting for it after contributing so much money to it. Benefits may decrease slightly, but as long as people are still paying in, I will receive some portion of my benefits (I think, that is. Who really knows)

Alex | Perfecting Dad September 13, 2011 at 7:50 am

In Canada, where I’m from, our social security (the government pension) is definitely a ponzi scheme. It is totally unfunded as far as I know, and is simply funded out of current revenue. That’s pretty much the definition of a ponzi scheme. The current contributors pay off earlier contributors. But that’s ok, I don’t know why that’s so wrong. We’re just hitting a crunch right now because the post baby-boomer generations are so much smaller.

Where I get into a problem is when you add on debt, so that the prior generations not only take the current entitlements, but they also take benefits but accrue the costs to future generations. That will eventually collapse.

Niki September 13, 2011 at 11:11 am

Like others have said, it’s not something that we will be depending on. Not that I think we shouldn’t have it. I just have a ‘prepare for the worst and hope for the best’ attitude about it. I couldn’t imagine where many of our retirees would be without it. It’s just a shame adjustments weren’t made before it turned into this type of situation.

Julie @ The Family CEO September 13, 2011 at 11:20 am

Social Security as we know it is unsustainable. It simply has to be reformed. People currently in the system and those who will be there soon, shouldn’t be affected. But for those younger we need to raise the retirement age and make other changes if we want it to be around for the long haul.

Jackie September 13, 2011 at 12:06 pm

I don’t know enough about it to discuss it in any detail intelligently, but in my case at least my feelings of “I won’t count on Social Security” come about because I just don’t trust anything that I don’t already have in my hot little hands. Plus, you know, it’s run by the government…

shanendoah@Baking the Budget September 13, 2011 at 2:06 pm

I agree the Social Security needs to be reformed, and that I don’t count on it being there for me. However, I’m in my mid-30s, and I do count on it being there for my parents and those retiring in the next 10-20 years.
On some level, SS is a ponzi scheme in that current workers are funding current retirees- that’s how it was set up. The first people to receive social security never paid a dime in to it.
Its not a ponzi scheme, though, if you believe it is society’s duty to care for the elderly and disabled. In my mind, the money I pay is going to support my grandparents, and my disabled mother in law. In a few years, I’ll be paying to support my parents. I see nothing wrong with that.
But I don’t assume it will still be around, at least not in its current form 30 years from now when I retire. And that’s okay with me. I see taking care of the older generations as money well spent.

Carol September 13, 2011 at 3:00 pm

I think we are all hoping for a politician with a reasonable plan to step forward.

krantcents September 13, 2011 at 5:05 pm

One of the best answers is to raise the retirement age because people are living longer. It should only apply to people have more than 15 years till retirement.

brad September 14, 2011 at 2:51 pm

The contribution needs to be on all money paid from your job, not just the first $106,000.

Kevin@RothIRA September 21, 2011 at 5:51 pm

I think that whatever Social Security is–or what ever perception we hold of it–we need to be prepared for the worst. The program is obviously overextented with the Baby Boomers moving into retiremnt.

We need to be prepared with retirement savings, non retirement savings, and to lower living expenses and eliminate debt.

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