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I laugh every time I hear someone say “Social a Security is not going to be there when I retire…that it is bankrupt… nothing but a Ponzi scheme that is doomed”. Well, it is a Ponzi scheme, but with two very unique components. First, the people who prosecute Ponzi operators are the creators of Social Security. Second, a Ponzi Scheme blows up when the money stops coming in, but these guys print the money. Therefore, it is highly unlikely the USA will see the end of Social Security, though if you lived in the Eurozone where individual countries no longer print money specific to their country, you might have serious risk.
In the US, however, the risk of Social Security is really two fold, (1) inflation and (2)means testing. First, inflation: Currently, Social Security has an unlimited guaranteed cost of living increase that they are unlikely to eliminate, but they may change the way they calculate the cost of living increase. As a matter of fact, Congress is theorizing a personal inflation rate rather than a general inflation rate which would result in payments to individuals at less than the rate of yearly inflation, without anyone even knowing it is happening.
Next, Means Testing: The risk of means testing, or no longer paying benefits to high income contributors, is voter anger. So, the Government needs to successfully avoid negative responses from voters by disguising and packaging change in a more palatable way. It’s the Governmental equivalent of giving a dog a pill in peanut butter.
To prove this point consider that Social Security has been means tested since 1982. The means testing got more severe in 1986, 2007 and every year tax brackets got higher, as they did in 2013. In 1982 President Reagan took tax free Social Security checks and made half of Social Security income taxable to anyone who made over $25,000. This taxation was more severe for higher income, higher tax- bracketed Americans; it was means testing without using the words means tested. President George H. W. Bush made Social Security up to 85% taxable in 1986 for anyone making over $34,000. Again means testing for higher income and higher tax-bracketed Americans. In 2007 President George W. Bush made Medicare part B premiums higher for anyone who made higher adjusted gross incomes. The standard premium is about $110/month, but for incomes over $170,000 the premium climbed to rates of $149/month to as high as $360/month. And, you can guess where Medicare Part B premiums are deducted — from your Social Security check. In essence this practice is means testing Social Security while managing another governmental financial accounting mess, Medicare.
Yes, they are Ponzi Scheme financial accounting nightmares, but they are also run by the taxing authorities and the money printing people of the country. So, no matter what your age, plan on the system being there in retirement, but also plan to be as financially prepared as possible and to anticipate Social Security will meet no more than 25 to 35% of your income needs.
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