16Sep2011

Should Social Security lexicon include Ponzi?

Referring to Social Security as a Ponzi scheme does not adequately help employers, employees, retirees and the general public understand the benefits, costs and salient issues related to this social insurance program.

Over the span of one week and two debates, the GOP presidential candidate field spent a considerable time explaining their positions on Social Security and addressing the solvency of one of the “third rails” of politics. The quote (check out the YouTube recording for the full back and forth) from the debate most frequently referenced in media coverage came from Rick Perry, Governor of Texas, who described the Social Security system as a “Ponzi scheme to tell our kids that are 25 or 30 years old today, you’re paying into a program that’s going to be there.”

The provocative and pithy language used over the course of these debates does not adequately help employers, employees, retirees and the general public understand the benefits, costs and salient issues related to this social insurance program. The Social Security Act (originally signed into law in 1935 by Franklin D. Roosevelt) governs the social welfare and social insurance programs associated with retirement, disability, survivorship and death. The Congressional Budget Office recently published a wonderful infographic showing why so many in politics, economics and business have brought the temperature up in the public discourse over Social Security. Highlights of the figures that are receiving the most attention include:

  • The number of Social Security recipients will increase by more than two-thirds (from 54 million to 91 million) between now and 2035.
  • In 1960 there were 4.9 workers for every beneficiary. By 2035 that ratio will come down to 1.9 workers for every beneficiary.
  • Life expectancy at age 65 has increased from 13 years for men and 16 years for women in 1950 to 19 years for men and 21 years for women in 2010.
  • In the most recent fiscal year, 20% of the total U.S. budget was spent on Social Security.

Beyond the numbers, we can look to a recent SOA blog post written by Warren Luckner, Director of the Actuarial Science Program at the University of Nebraska-Lincoln, to showcase the importance of coming to a common understanding on how we adjust benefits for cost of living changes. Discussions about indexing, payroll tax deductions and GDP ratios may not be as exciting as comparing Social Security to a Ponzi scheme, but engaging in these more fundamental discussions might just help preserve a key pillar of the country’s social insurance safety net.

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