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 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?