The 2024 report of the Social Security Trustees estimated that Social Security would become insolvent in 2035 unless changes were made in the program. Image: zimmytws/Shutterstock.com
By: John GrobeElon Musk recently called Social Security a “Ponzi Scheme”. I wonder how the 27% of retired Americans who rely solely on Social Security for their income feel about that. How about the 62% who get more than half of their retirement income from Social Security? These are hardworking citizens who have paid 6.2% of their salary into Social Security for their entire careers (or the surviving spouses of those workers).
To refresh our memory, a Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. It was named after Charles Ponzi, a businessman whose scheme garnered considerable press coverage both in the United States and internationally. These schemes eventually collapse during market downturns, leaving recent investors holding the bag. A recent well-known Ponzi scheme was run by the late Bernie Madoff and victimized wealthy investors.
Even federal employees were victimized by a Ponzi schemer. Wayne McLeod, owner of Federal Employees Benefits Group, bilked feds of $34 million dollars before he killed himself on June 22, 2010. The Securities and Exchange Commission (SEC) became aware of his fraud, and he killed himself a mere 10 minutes before he was to meet with their attorneys.
However, there is no fraud, or intent to victimize, in Social Security. Yes, current benefits for Social Security recipients are funded by payroll taxes paid by current workers, but those current workers will receive benefits paid for by the payroll taxes of future workers.
Social Security could be more accurately compared to insurance. Current workers pay premiums (payroll taxes) to protect against problems caused by dangers that were either unforeseen or unprepared for – such as disability or old age. 96% of the American workforce participates in Social Security.
In fact, two acronyms commonly used for Social Security contain the word “insurance”. FICA stands for the Federal Insurance Contributions Act, and OASDI stands for Old Age, Survivors, and Disability Insurance. Many also refer to Social Security as Social Insurance.
Like with certain types of insurance, one might not collect a benefit for the premiums they’ve paid. Casualty insurance goes back to the late Middle Ages when merchants pooled their resources to protect themselves against risks.
It is true that, due to changing demographics, Social Security is at risk. The 2024 report of the Social Security Trustees estimated that Social Security would become insolvent in 2035 unless changes were made in the program.
Some of the changes that have been suggested are:
Increasing the full retirement age.
Raising the payroll tax.
Decreasing benefits.
Doing away with the tax cap.
Means testing the benefits of higher income recipients.
Creating private accounts.
Changing how the COLA is computed.
40+ years ago, Congress waited until 3 months before Social Security would become insolvent to change the program. Maybe Musk’s ravings will get Congress off its collective backside and inspire them to make Social Security solvent for the future. Let’s hope that his mischaracterization of Social Security won’t be taken seriously.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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