Social Security: The perfect Ponzi scheme
Do you remember how happy you where when you got your first job? I was ecstatic! I also remember my first paycheck. I was upset by the deductions from my gross pay, and was told that some of these deductions were for my benefit. Unemployment Insurance will pay me benefits should I lose my job. Social Security will ensure that I have a good life in my old age. Federal, state and local taxes provide me with many government services including paved roads, protection from bad guys at home and abroad, and a safety net in case of national disasters. Let's get real! I never collected unemployment insurance so that deduction did me no good. The roads I drive on are bumpy and filled with potholes. The government does not protect me from bad guys, Smith & Wesson does.
Let's focus on Social Security. We have been paying Social Security all of our working lives. Our employer also contributes to Social Security on our behalf. As of December 2010 the Social Security Trust had $2.6 trillion available to meet the future needs of our retired population. Without any changes to the plan, the trust fund will remain solvent until 2032. So why are the politicians telling us that we may not get our social security checks if the debt ceiling is not increased? Why are they threatening to throw Grandma off the cliff? Our elected representatives in Washington squandered the cash in the Social Security Trust. They pilfered the money to fund their excessive spending sprees. They replaced the cash with government bonds that may indeed turn out to be worthless. (Lie as they may, we know that they can pay our pensions out of current revenue each month if they wish. They just have to prioritize the payments to ensure our retired citizens are not cheated out of their own funds).
Bernie Madoff was convicted of stealing $18 billion in a Ponzi scheme, where early investors were given excellent returns using funds from new investors. When there were not enough new investors to pay the older investors, the scheme collapsed and Bernie was exposed for the fraud he was. Lord Conrad Black is now in a federal prison in Florida for fraud. Both of these men stole massive amounts of money and thought they could get away with it. Had they been Congressman, they would be free men! Social Security is one big Ponzi scheme.
Money is collected from employees and put into a trust fund from which pensioners are paid their Social Security. When the government ran out of money, our politicians raided the trust fund to pay for their excesses. They used current year contributions to fund current year payments to recipients. This worked out well as long as the workforce was growing and there were plenty of young people working for each person who was retired. In 2011, the cash inflows from workers were not enough to cover the payments to the recipients. Now the government must borrow money to pay benefits. The trust fund money contributed by our blood, our sweat, and our tears, is gone. Our elected officials are responsible for the collapse of the largest Ponzi scheme in history, the theft of $2.6 trillion from the American people.
Starting this month, I may get my first Social Security check. I was surprised at how small it will be. Based on the amount I paid into Social Security and the funds my business contributed on my behalf, I will not get back the money I paid in until I am 92 1/2 years old. I believed that you would get more back from Social Security than you put in. I just checked the actuarial tables and an American male in good health can expect to live to 78 years of age. So even if I was in the best of health, I am being shortchanged. Should I die at 70, the government makes one heck of a "profit" on me. With ObamaCare, we know that we will be denied treatment for manageable diseases as we age. The government has a vested interest in withholding treatment so that we will die younger! The sooner we go, the longer they can continue their Ponzi scheme.
As an investor, I know that money invested each month over 45 year period will grow substantially. If my Social Security payments earned me a miserly 3 percent return, it would be worth 225 percent more than it is under government management. At a more reasonable long-term growth rate of 6 percent, it would be 556 percent more than it is. George W. Bush knew that privatizing Social Security would enable workers to achieve a superior return. He proposed that people could, at their option, invest up to half of their Social Security remissions in the private market. Under his plan, we the people could earn a better return while Congress could continue to spend the other half of our Social Security contributions. This was a good compromise and should have been implemented. Al Gore's claim was that private investment would bankrupt Social Security. Well, wake up! The trust fund is empty and the government has squandered our wealth. Who in their right mind would willingly trust their retirement income to the government of the United States of America?
Many of us recognized this earlier in life and funded our 401(k)s and our IRAs. As a result, we can be somewhat comfortable in our retirement. Had we followed the George W. Bush plan, most of us would have accumulated enough to have a luxurious retirement. Even the stock market crash did not vaporize the returns that safe balanced mutual funds can offer. For most retirees are gooses are cooked. We're stuck with Social Security as it is. To get by, many of us have taken minimum wage, part-time jobs. This is a very unfortunate and an unexpected outcome. Current retirees did not work their lives so that they are forced to work in retirement. But they do need to put food on the table, pay their taxes, heat their houses, and by their medicines. So they trudge off to the salt mines because our government failed us.
Our congressmen knew that they deserve better than Social Security. They created the Federal Employees Retirement Plan (FERP) for federal employees as well as members of Congress. This plan consists of 3 parts: basic benefits, Social Security, and a Thrift Savings Plan. The Thrift Savings Plan is administered by the Retirement Thrift Investment Board and produces a very nice return for the chosen few who are able to get it. I believe that every American citizen should have the option of participating in the same plan as our federal employees and more importantly our elected representatives. Why should they get a better deal than us? They work for us! If our congressmen had to retire on Social Security you can bet they would make changes to the program to allow for investment choices and prevent the government from raiding the fund to finance their ravenous spending sprees.
As an alternative to making FERP available to everyone, congress could implement the Bush plan or a variation of it. George W Bush has been and continues to be falsely blamed for all that is wrong with the American economy. Yet he has never received credit for the best idea of our generation: that the people be permitted to invest their own Social Security funds for their retirement. (http://www.huffingtonpost.com/2010/10/22/george-w-bush-reveals-his_n_772209.html). Bush's plan will not do any good for those of us were retired now, but it will certainly help our children and our grandchildren. By investing part of their Social Security contributions in a small number of approved investments, our children and grandchildren will be able to enjoy their retirement. With 30 or 40 years of compounded interest and profits, they will have the retirement that we were promised.
As you read stories concerning the potential default on our debt and our massive deficit, realize that this debate is a cover-up for what I believe is the greatest theft of all time. Our Congress has stolen our retirement and they are doing their best to sweep the facts under the table. The issue is clear. They raided the people's money and they spent it on their pet projects. If they were corporate executives like Bernie Madoff and Lord Black, they would be prosecuted for this massive fraud and spend the rest of their lives in jail.
© 2011 Gordon Smith - All Rights Reserved