Saturday, September 10, 2011

Rick Perry is Right: Social Security Really is a Ponzi Scheme

Rick Perry's comments during this week's GOP debate at the Reagan library has caused quite a stir in the liberal media.

During the debate, Governor Perry defended the words in his book, calling Social Security a "Ponzi scheme".

After the debate, the "analysis" on MSNBC was truly fun to watch as every commentator sat shelled shocked over the fact that a politician would dare to use these words to describe America's most sacred welfare program.

The only person on the panel who had a clue about what might be going on was Ed Schultz who at one point questioned whether or not whether young people would stick with Obama or jump on the Perry bandwagon.

Unlike the political and media establishment in this country, young people understand that they are going to get the short end of the Social Security "inter-generational compact". Schultz surprisingly realized that Perry's message might resonant with young people.

Let's take a quick look at the Social Security system and see if Perry might be on to something.

The people who got into the Social Security system very early got back on average 15 times the amount of money they paid in. They got a great deal and were raving proponents of the system.

The people receiving Social Security benefits today are getting back on average 2 1/2 to 3 times what they paid in. They are also generally strong proponents of the system.

Today, Social Security is paying out more every year than it takes it. We are borrowing money from foreigners, like the Chinese and Saudis to pay current benefits. As the huge Baby Boom generation retires, the amount of debt we incur each year will quickly escalate.

So, what happens when my generation starts to retire in 15 to 20 years and what will happen to my kids?

We will all be left holding the bag.

There is a financial MODEL that describes this. The model is called a Pyramid scheme or Ponzi scheme or a Bernie Madoff scheme. The people who get it in early make out like bandits and the people who get it late get screwed.

That is exactly how the Social Security system will play out.

The fact is that the Social Security is a pay-as-you­-go welfare system that transfers money from young, struggling families to relatively well-to-do retired people. There isn't any "trust fund". The words "trust fund" are used to describe a mountain of debt. A mountain of debt is NOT a trust fund. It's a mountain of debt. Today, the mountain of debt in the Social Security system is so great that it cannot be paid.

Peel away the emotion, the Orwellian language about the "trust fund", and the other political rhetoric, and just look at the financial facts. Then this all becomes very clear.

Rick Perry is absolutely right and I am actually impressed that a politician would tell the truth about this. It's truly amazing.

The big question is what can be done?

Long term, people need to be able to save for their own retirements. Social Security needs to be taken back to it's roots as a program that supplements the income of retirees who are truly poor, through no fault of their own.

Today, 25% of people over 65 have pension or investment income that places them in the "wealthy" category. They still get Social Security benefits, so long as they don't work for their income. Why should young struggling families hand money over the wealthy retired people?

They shouldn't. Means testing Social Security will go a long way to make it solvent for the future.

When Social Security was implemente­d, the retirement age was 65. The average life expectancy was 59 for men and 61 for women. Most people didn't live long enough to get a check. Today, the retirement age is still 65. However, life expectancy is 73 for men and 78 for women.

The numbers just don't work.

We need to gradually raise the retirement age to keep up with life expectancy.

Bravo to Perry for telling it like it is. I certainly agree with Ed Schultz that a lot of young people will find this message appealing.

The other group who should find this message appealing are wealthy retirees who are stealing from their children's and grandchildren's future. Will they finally put their selfishness aside and say: "no more"? Probably not, but we'll see.

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