Despite What Headlines Say, Social Security is Not a Ponzi Scheme
Social Security has been called “the biggest Ponzi scheme of all time.” That is definitely not true, but it’s easy to see why some people might think that way.
According to a post in Advisor Perspectives, a “Ponzi scheme is a form of financial fraud that lures investors with the promise of high returns. Instead of earning those returns through legitimate investments, the scheme pays earlier investors using money from newer ones.” The model eventually fails when there aren’t enough new investors to sustain the scheme, leaving most investors suffering significant financial losses.
A Social Contract
In contrast, the article describes Social Security as a government-run, pay-as-you-go tax program. Payroll taxes paid by workers and employers are used to provide benefits to retirees. It calls Social Security “a commitment to our elders. A tax-supported promise to care for one another across generations.”
While there are similarities, in this case using money from young workers to support older retirees, that article points out that Social Security is not a con like a Ponzi scheme — it’s a social contract. And that’s exactly why Congress needs to act to ensure its solvency.
Solvency Solution
The Seniors Trust believes the best way to ensure the solvency of our vital Social Security program is for lawmakers to enact the Social Security Expansion Act. This landmark bill buttresses the long-term solvency of Social Security by expanding benefits for seniors — not cutting them!
If passed, this legislation will make four major changes to Social Security for retirees:
- Benefits will be increased for most recipients by about $200 per month.
- The Consumer Price Index for the Elderly (CPI-E) will be used to calculate Social Security Cost-of-Living Adjustments (COLAs) instead of the Consumer Price Index for Urban Wage Earners (CPI-W) used currently. The CPI-E takes the unique spending habits of seniors into account, particularly regarding the cost of healthcare, and offers a more realistic cost-of-living adjustment (COLA) for retirees.
- The minimum Social Security benefits would be increased to provide higher payments to seniors and greatly reduce senior poverty.
- The long-term solvency of the Social Security program would be guaranteed.