Ponzi Scheme
Con men often scam their victims using a method that has come to be known as a Ponzi scheme, which works like this:
- Initial victims are promised future rewards, usually a high interest rate, for money invested now.
- The con man keeps that money.
- The con man finds another victim, pays some of that new-found money to the initial victim, and keeps the rest.
- The initial victim actually realizes the promised reward, so tells other people about this great deal.
- Other victims invest their money.
- Repeat
The scheme relies on a continual and growing group of new investors. At some point, past investors stop receiving their rewards because there are no new investors and their investment is lost. If the con man is found, he is sent to jail. There are cases where individuals have illegally reaped millions of dollars this way.
Even today, investors fall prey to these types of pyramid schemes.
If you take a look at the Social Security program created and supported by our government, you will find many, many similarities with illegal pyramid schemes. If you or I were running an “investment program” in the very same way the government does, it would be shut down immediately. So, how can the government justify continuing it?
Like many other government programs, the problem is that, once started, they are very very hard to stop. People who have paid into the Social Security program for years “want theirs”… so put a great deal of pressure on politicians to make sure their benefits don’t get taken away. Most politicians, of course, never like to deliver or support “bad news”… and it’s not their money, after all… so they not only support the program but advocate enhancements to it (such as cost-of-living-adjustments).
So now we have a program that is turning upside down. Originally, “the many” paid in and “the few” received benefits. It is sustainable when this is the case. Demographics have changed, though, and there will soon be more people eligible for benefits than are paying in. This scenario is not sustainable.
To further complicate the picture, Social Security has morphed in the minds of many (if not most) citizens from its original intent (a voluntary program providing an additional benefit to retirees, to supplement their retirement plan and savings) to a comprehensive retirement program (a requirement and depended upon… with little focus on a personal retirement plan or individual savings). Of course, the dollar benefits actually provided by the program are relatively small… and it would be difficult to accurately call this a full retirement plan.
And, to add insult to injury, the system carries a huge administrative burden (meaning, MANY dollars are spent by the bureaucracy that has inevitably been built around the program) and suffers from widespread fraud (people have figured out ways to illegally obtain benefits).
This is a bad situation and, unfortunately, will have to come to an end somehow. Reality dictates this… it’s just a matter of time. It certainly isn’t fair to suddenly pull the rug out from under the system, that would cause additional problems, so some kind of transition away from Social Security as we know it must take place.
Given the poor rate of return (from an individual’s financial perspective), it seems perfectly logical to move the program to resemble a private retirement fund, where individuals have more control over their investment and will more likely earn more from it. WE must face the facts: once again, the “leaders” of our government has USED US and it’s time to call them on it. Changes MUST be made. It is delusional to think otherwise.
