Is Social Security a Ponzi Scheme?

In the news recently, a person paid $25 in social security taxes and received $25,000 in social security benefits.  Can you possibly run an entitlement program this way?  The answer is obviously yes.  That’s right.  The answer is yes.  Get 1000 people to put in $25 each.  The last person standing wins all the money.

This is called pooled risk, not a ponzi scheme.  There are 2 rules of pooled risk that every person that has run the office Super Bowl betting pool knows, that congress seems to have forgotten:

• Rule #1:  You can not get more money out than you collect.
• Rule #2:  You can not change the rules after you collect the money.

Has congress changed the social security rules after the system started?

In 1983 to save social security, Tip O’Neil and Ronald Reagan compromised and raised the retirement age from 65 to 67 for people born after 1959.  People was born in 1960 and had been paying social security taxes for 7 years before the rules changed.  Paul Ryan has proposed more rule changes for those under the age of 55.  This means the rules will change again for people born in 1960.

Has congress given away more money than they collected?  The congress and the courts have increased the number of people eligible to receive social security payments, which has increase the money paid out but not increased the money collected.  Disability benefits have been added that did not exist before.  Workers have been made eligible to collect retirement benefits with fewer years worked than when the system was first developed.

Have all these changes turned a pooled risk system into a Ponzi scheme?  I’ll let you, the reader, decide.