Nine Most Brazen Ponzi Schemes in History
9. Social Security
Well, not exactly, but Social Security does have a few similarities to a Ponzi scheme.
But first, a little about Social Security. In 1935, President Roosevelt introduced a controversial “social insurance” to prevent the crushing poverty that hit many Americans in their old age during the Great Depression. As part of his New Deal, Social Security provided benefits to retirees and the unemployed, financed by taxes on current worker’s wages.
The details have changed over the years, but the basics remain the same: just like in a Ponzi scheme, money from new investors (taxpayer) is used as payout to older investors (retirees).
From 1937 to 2005, Social Security has taken in more than $10.7 trillion in taxes and other income. In the same time period, it has given out more than $8.9 trillion (Source). The program is actually taking in more in taxes than it gives out in benefits (and invested it in Treasurys – this in itself is a complicated issue because it’s akin to the government giving itself an IOU). It is projected to run a surplus until 2018, when the baby boomers are expected to retire and start draw their benefits. Though it’s difficult to accurately predict, Social Security’s own trustees expect the program to run out of money by 2040 unless big changes are made (Source).
There’s one similarity between Social Security and Ponzi scheme that is irrefutable: the early investors/retirees get the better end of the deal. The first person to receive monthly retirement check was Ida May Fuller of Ludlow, Virginia. Ida retired in November 1939 at the age of 65 and started collecting her checks in January 1940. She lived to be 100 years old, and during her lifetime, she collected $22,888.92 in Social Security benefits. Ida put in a total of $24.75 into the system, thus giving a return of over 90,000%!
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