Is Social Security a Ponzi Scheme?

Well, it happened again. I was on Facebook looking at pictures of friends and trying to ignore political posts when a post came up about Social Security. This always intrigues me, so I opened the link and while I agree with some of their analysis it is not completely accurate. Then deciding to enter into the comments with some of my knowledge since I do teach on the subject I soon realized that many people do not want to understand or even have an intelligent conversation about how to solve the coming challenge. There are several ways to do this and in my classes, I go over these so if you want to know more they are free on the website, but what took me aback was the constant repetition of the lie that Social Security is a Ponzi Scheme. It did not matter to these people that when you look at the definition of a Ponzi Scheme it has several elements that are listed on Investopedia.com. Like any good conspiracy theory, there are a few pieces of truth. The one that is most commonly repeated is taking money from one generation to pay the next. This is an element of a Ponzi Scheme, but if that were the only criteria for defining it as a Ponzi Scheme then all pensions would fall under the same classification, but you never hear people referring to their IBM or GE pension as a Ponzi Scheme. In fact, you seldom hear state employees refer to their pension as a Ponzi Scheme. The truth is that you have to look at the rest of the definition to see that while it may get you several likes on Facebook to post comments like this it is not accurate. The first characteristic of Social Security is a high return for a low risk. Anyone that has looked at the actual return on Social Security knows that this is not true. The second characteristic is consistent flows regardless of market conditions. While Social Security does provide consistent flows it is actuarially calculated based on your own personal history and decisions. There is a characteristic of being not being registered, but neither are pensions. This next characteristic is a big one and that is that the strategy is unknown or too complex. While Social Security has an estimated 22,000 pages of rules, for most it is actually fairly easy to calculate if you know the formulas. This is the reason for software to calculate benefits. This is also similar to private pensions. The last two characteristics I am going to combine. They are a lack of paperwork and not being able to get your money back when you want it. Anyone that has dealt with Social Security knows there is easily accessible paperwork, now you may not get any help in optimizing it but they will certainly help you complete the paperwork. And as far as not getting your money at any time this is common in pensions and annuity contracts. All of this to say that while it might get you some likes on Facebook by claiming Social Security is a Ponzi Scheme it is simply not true. Social Security is complex and you do have to understand it before you make any decision. This is why I have the education on my website and why I provide independent analysis of benefits to help those that want to get the most out of their benefits. For those that think it is a Ponzi Scheme just keep collecting your checks until you die and then your spouse can collect. That is the reality and it is backed by the ability of our government to tax to make up the difference. Will Congress change this who knows but that is a topic for another day?

What is your number?

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I recently saw an article that emphasized that you should have some magic number of assets saved up for retirement. While I agree that the assets play an important part in retirement planning, often they are underfunded and other saving objectives throughout life have a higher priority. What is missed in articles like this is that people often fail to take advantage of the elements of retirement that they can control. The timing of the coordination of these resources will have a significant impact on the longevity of your assets. For example, if someone chooses to retire at 62 and has insufficient assets for retirement they may be better off taking Social Security early, but if they live a long time will still run out of liquid assets. On the other hand, if they delay Social Security until 70 they will deplete assets even sooner to cover the gap while delaying Social Security. This delaying of Social Security may lead to greater cash flow later in life, but the problem of running out of liquid assets still exists. So, in this case, taking Social Security early is not a good option and delaying Social Security is not a good option and in either case, they do not have enough liquid assets to last a lifetime. What can they do? The third an often overlooked resource is to continue working. Then they can match the Social Security strategy with the assets  to meet or exceed the expected mortality. While there is a number that will comfortably provide enough income to last a lifetime, it is not the norm and the majority of people will have to figure out how to get the most out of what they have and be strategic about using all their resources to their fullest potential. The reason I created Retirement Resource Management is to help people put all these resources together and educate them on the best path for retirement. Retirement is not a number but a plan of using what you have to the greatest potential. We are here to help.

Rocky Mount Educational Event

We had a great event at Benvenue Country Club in Rocky Mount NC. At a lunch meeting, I had the opportunity to share how to get more out of Social Security benefits for a group of about 15 people. Special thanks to Jolley Asset Management for hosting this event. We discussed the common myths of Social Security, recent rule changes, how to use the remaining rules to their advantage, and how Social Security can impact their other resources in retirement. At the conclusion, we discussed the value of having the facts before they make a decision on when to take benefits. We let them know that we were available to run a custom analysis for them and most took us up on our offer. This is why I provide the education, so people can understand why haveing all the facts is so important for their future. If you would like to host an event in your area, just click on the tab on our website. We would love to help.

New Social Security SCAM

I was sent an article that recently appeared in the McDowell News, a local paper in the mountains of NC, that details a new scam meant to first scare people about Social Security and falsely uses a reputable source in the community as a source of the information. The end goal is for people to send small amounts to them in which they use for their own purposes. Just want everyone to be aware of this as there are too many people trying to take advantage of Senior Citizens. Here is the link to the article. McDowell News

What to expect when you are expecting… a cost of living increase.

No doubt about it. One of the best features of Social Security is the Cost of Living Adjustment or COLA. This past year came as a surprise for many as there was no COLA and thus no increase. Now I know what you are thinking that my grocery bill went up, my health care went up, my homeowner’s insurance went up. In fact, most things did increase in price, but what you actually pay has little to do with how the COLA is figured. COLA is based on what is known as CPI-W or Consumer Price Index for Urban workers. This index is very beneficial for the government to use as it is below CPI as a whole and it does impact retirees income. In fact, some experts estimate that Seniors have lost 23% of their purchasing power since 2000. This is not good news for retirees. To add to the pain medicare premiums have increased for some too and are expected to continue to increase above the COLA. For retirees, that means less in your pocket. There is a little good news for those currently receiving benefits. The law provides some protection for you. If there is no cost of living increase, the premiums for those who are receiving benefits does not increase. This does not apply to those that have chosen to delay benefits. Now this might seem like taking benefits earlier might be a good move. In reality, it does not. You trade off the increase of 8% increase per year delayed for a short term gain in income. Also when COLA’s are reinstituted you play catch up until you pay the same as those that had the initial increase. The last time this happened, retirees were back to the same level in three years. So imagine you made an emotional decision without evaluating the long-term effect on your income. Now for the rest of your life, you get less money, all to get a short term gain for a couple of years. So why the bad news? My goal with education is to keep you from making mistakes that way too many people make. In  this case, we may have another year with no COLA and while that is not the best situation, I hope that you will look at the long-term picture and make an educated decision based on the facts and your long term income. If you have questions give us a call. We are here to help.