Compare and contrast: Ponzi scheme vs. Social Security
This is a Ponzi scheme: In January, you ask the Five Guys of burger fame to invest $100 each with the promise of 25 percent profit every three months.
Then in April, you ask the White Sox’s starting line-up to invest $100 for 20 percent profit every three months. You take their money, divvy it up between yourself and the Five Guys of Burger Fame.
In July, you ask the Steppenwolf ensemble to invest $100 for 15 percent profit every three months. You take their money and split it between yourself, the White Sox starting line up and the Five Guys of burger fame.
In October, you ask everybody who goes to Sidetrack’s show tunes night to invest $100 for 10 percent profit. You take their money and distribute it between yourself, the Steppenwolf ensemble, the White Sox starting line-up and the Five Guys of burger fame.
You keep doing this, always enlarging the circle, always keeping the promised profits above the norm, and always taking a big slice for yourself. Eventually somebody figures out what you're doing and, chances are, you go to jail. (For some classic Ponzis, click here.)
Social Security, on the other hand, is a pay-as-you-go system. When we pay Social Security taxes, the money almost immediately goes to someone who’s receiving Social Security benefits -- the same way car insurance works, and corporate dividends and a bunch of other stuff.
And by “we” I mean about 96 percent of us. Employers generally match our payment at about 6.2 percent of our salary, though that’s been down to 4.2 percent this year because of the “payroll tax cut.”
More than half of Social Security benefits are paid out to retired workers, the rest goes to disability recipients, dependents and survivors.
In recent years, Social Security has actually collected more than it doled out. Last year, 54 million people received Social Security benefits, while 157 million people were paying into the fund.
When there are surpluses, Social Security invests in U.S. Treasury Bonds. Right now, there’s a more than $2.6 trillion dollar Social Security surplus.