Reality Check: Is Social Security a Ponzi scheme?

(FOX19) - In his book "Fed Up" Texas Governor Rick Perry wrote that Social Security is an illegal ponzi scheme.

During the debate Wednesday night, he was again asked about that comments and the Texas Governor didn't back down.

He again said that the program is a ponzi scheme and added this.

"and it is a monstrous lie. It is a ponzi scheme to tell our kids that are 25 or 30 years old today, You pay into a program that is going to be there."  said Gov. Perry.

So, is social security a ponzi scheme?  To begin with, lets talk about what a ponzi scheme actually is.

Named after Boston con man Charles Ponzi, it is a fraudulent investment operation.  In its essential design it's a con.  Because the scheme requires an ever-increasing number of new participants to pay off earlier investors, they inevitably collapse.

Is that social security?

It is true that Social Security depends on future investors to pay for current ones.  But Social Security isn't an individual investment plan.

It's a government insurance plan that offers seniors a predictable income.  Retirees do depend on future workers to pay their Social Security benefits, though unlike a ponzi scheme, nobody pretends otherwise.

Under the programs design, if you die before you become eligible, your estate doesn't get your money.  If you live longer than average, you get more than what you paid in.

Social Security is also referred to as a ponzi scheme because money is taken out of the Social Security Trust Fund and moved to treasury bonds taken from one place and used in another.

The lie, says Governor Perry is that Social Security will be there in the future.  Unlike regular investments, participants in social security don't own their accounts.  For years, Social Security collected more in payroll taxes than it paid out in benefits, but that is no longer the case.

The program is now drawing on the surplus accumulated during those years.

By 2036, the program's actuaries predict, Social Security will have exhausted its reserves and will only be able to pay 77% of promised benefits.

Here's what you need to know.

Charles Ponzi's scheme was unsustainable because the basic math of his system required ever increasing and unrealistic numbers of investors.

But the reality is that Social Security's system is also unsustainable, at least the way it is currently structured.

That is because for those 25 and 30 year olds, who Governor Perry spoke of, they will have to support an increasing number of retirees who have much fewer workers to support them.

That math doesn't work.

And that is Reality Check.

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