October 25, 2025
You Decide: Is Social Security Secure?
By Mike Walden
Recently, one of my relatives contacted me, and there was desperation in her voice. Immediately, I worried it was about a health issue for her or another relative. Fortunately, it wasn’t, but to her it was just as important.
Her worry was about Social Security. She had heard talk about Social Security going broke. She had also heard of some calling Social Security a “Ponzi scheme,” and although she didn’t know exactly what that was, she remembered the disgraced investor Bernie Madoff being convicted of it. Her last comment was, “I want to know what Social Security has done with my money?”
I had several responses for my relative. First, I informed her the funds she and her employer had contributed to Social Security were not tagged with her name. I told her to look at the name of the program. It is not “Individual Security;” instead, it is “Social Security.”
Social Security was designed in the 1930s to guarantee some minimal level of financial security for older individuals, especially those who were retired. Contributions from both individuals and employers are all put into one large collection of money. No one’s name is attached to any of the money.
Instead, when an individual begins receiving Social Security payments, a formula is used to determine the size of the payment. Many factors go into the formula, including life expectancy, lifetime earnings and number of years worked. The formula is also designed to help lower-income households more than higher-income households.
What about the issue of Social Security being a “Ponzi scheme?” A Ponzi scheme is a system where the supposed financial earnings to investors are paid by contributions from new investors rather than from investment earnings. This is exactly what Bernie Madoff did.
When some of the investments Madoff made for his clients failed, he began to pay the clients with contributions of new clients. Eventually, there were no investment earnings to pay his clients, so he began to rely completely on attracting new clients and new contributions. Clients were led to believe Bernie Madoff was just a very, very smart investor. But, when the 2008 financial crisis occurred and new clients stopped investing with Madoff, existing clients wanting to make withdrawals found there was nothing to withdraw, and Madoff was exposed.
On the surface, the claim could be made that Social Security is a Ponzi scheme. Social Security relies on current workers contributing to the system in order to sustain payments to retired workers. If the relative number of existing workers to retirees drops, payments to retirees will also decline. This is exactly what is happening today, as the growth of new workers is declining relative to the growth and longer longevity of retired workers. Indeed, Social Security has already announced it will face shortfalls in payments to retirees beginning in the early 2030s. As I have written in previous columns, changes to Social Security will likely be made sometime in the future to keep the system going, just like 40 years ago when the same situation existed.
An important element of a Ponzi scheme is deception. Investors are told their money is being invested and earning high returns, while what really is happening is the alleged high returns are only created with new contributors’ money.
There is no deception in Social Security. Anyone can read about how Social Security is operated. My relative who thought Social Security invested her contributions only for her believed this because she never took the time to read about Social Security. When I told her how the system works, she was completely surprised.
There’s another key difference between a Ponzi scheme and Social Security. In a Ponzi scheme, new investors can stop coming. Indeed, this is what caused the collapse of Bernie Madoff as the national financial crisis in 2008 caused potential new investors to hold on to their money. In contrast, all workers — with a few exceptions — are required to contribute to Social Security.
Even if Social Security is not a true Ponzi scheme, there are still serious questions facing the system. A big question is how the system will be changed to accommodate the new demographics. To what degree should Social Security taxes be raised and benefits cut? Should these changes be applied to all participants, or should there be differences between income levels? Also, should Social Security’s investment portfolio, which is now limited to safe U.S. Treasury securities, be broadened to include stocks, precious metals and other options paying higher returns, but also carrying more risk?
Perhaps the ultimate question for Social Security is whether an option should be provided for “Individual Security.” That is, should people be allowed to take some or all of their Social Security contributions and invest them as they wish? The last time this idea was seriously proposed in 2005 it was rejected.
Social Security has been a key component of individual retirement for almost a century. It is also a special kind of retirement plan that relies on participation between generations. While there are no secrets about how Social Security operates, there are still questions about whether it is the best system for everyone. In my opinion, this is a big and very important “you decide.”
Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.
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14 Comments
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Yes it is for the older generation that is collecting now, but if this newer generations don’t pay into it, it will jeopardize the future as we all know the younger generations pay into SS for the ones on SS.
Mike Walden’s piece defends Social Security against the false claim that it’s a Ponzi scheme — and in that narrow sense, he’s right. Social Security is a pay-as-you-go system, not a deceptive investment scam. But what Walden fails to address is just as important as what he includes.
Let’s talk about what he left out: decades of political mismanagement and fund diversion. Since the 1980s, roughly $2.7 trillion in Social Security surpluses have been “borrowed” by the federal government to cover other expenses — funds that were supposed to be held in trust for retirees. Instead of a cash reserve, the Social Security Trust Fund holds Treasury IOUs that can only be repaid by future taxpayers.
And it’s not just a historical issue. The program is now drawing down on those IOUs, and projections show Social Security will require an additional $4.1 trillion in federal borrowing over the next decade just to meet its obligations — adding strain to the national debt and threatening future benefit levels.
Meanwhile, Walden sidesteps the most obvious and fair solution: raising or eliminating the payroll tax cap. As of 2024, income above $168,600 isn’t taxed for Social Security at all. That means:
• A worker earning $38,000 pays $2,356 per year into Social Security — 6.2% of their entire income
• A billionaire earning $10 million also pays just $10,459 per year — the maximum — which amounts to 0.1% of their income
In other words: a grocery clerk pays a far greater share of their income into Social Security than a billionaire does.
And let’s be clear: the average American isn’t “scamming” Social Security — the government is. Fraud in the program is extremely low, yet politicians continue to vilify beneficiaries while ignoring how Washington treated the trust fund like a slush fund. The myth of the freeloader is a distraction. The real misuse of funds came from the top.
In short:
• Social Security isn’t a Ponzi scheme — but it has been irresponsibly treated like a piggy bank by Congress
• The public has every right to ask where their money went — because $2.7 trillion was spent elsewhere, and now $4.1 trillion in new borrowing is projected
• The real question isn’t whether Social Security works. It’s whether political leaders are willing to protect it — or continue sabotaging it to justify privatization or benefit cuts
Social Security is not broken — but Washington’s handling of it is. Fixing it isn’t complicated: stop raiding the fund and make the ultra-wealthy pay their share.
Nicely stated. I agree with everything you’ve stated, except one point. The very wealthy will most likely not ever draw social security. They still pay in but will never reap any benefits . They will draw so much income from investments they will be far above the earnings test and actually have to continue to pay even longer in to SS. The little bit they could get at 70 will pale in comparision of what they paid in.
“Since the 1980s, roughly $2.7 trillion in Social Security surpluses have been “borrowed” by the federal government to cover other expenses”
False statement!!! Try again Chris. That misinformation has been proven false many times.
If that money had been borrowed, who better is there to pay their dept with interest that the US government, which has never defaulted on dept.
Think about it,
Actually, the claim is true and backed by the Social Security Administration itself. Since the 1980s, Social Security collected more in payroll taxes than it paid out, generating surpluses. That money was legally loaned to the federal government and used for other spending — in return, the Trust Fund (SS) received interest-bearing Treasury bonds. These are obligations the U.S. government must repay.
Source: SSA.gov – Trust Fund FAQs
You don’t have to take my word for it — it’s public record.
But let’s be honest: I’m not here to convince you. I’m posting this for others reading along — people who still care about facts. Not everyone’s dug in. Some just need to see that not all of us are shouting nonsense.
Chris, maybe you should read this, and note that ALL SS monies in the trust fund are and have been converted into government bonds to earn interest on the social security monies. All bonds are essentially a loan to the government and are always paid back. This has been the process for holding SS fund monies from the beginning.
https://jocoreport522.e.wpstage.net/social-security-matters-when-will-funds-stolen-from-social-security-be-replaced/
SOCIALISM Security was a “great” idea when the baby boomers were entering the workforce and greatly outnumbered the retirees. The core problem with this SOCIALIST attempt at wealth distribution is that there are no longer enough workers to support the retired.
It’s a very simple fix. There are only 2 options:
– Raise the age and reduce this SOCIALIST benefit
or
– Raise the tax on the workers
Of course, the REAL solution is to eliminate this SOCIALIST benefit completely. There is NO reason to think the government should bankroll your retirement. If you didn’t save and invest — that’s YOUR FAULT! #MAGA #BeResponsible #SupportYourself #StopSOCIALISM
You know nothing. How sad for you.
Short Sighted comment.
Too little, too late.
And if someone has made so much money in their life that they only get a fraction back in return, why not be THANKFUL that you’re able to help the less fortunate?
Yet, the same folfs who are shouting so loudly proclaim to be our
Christian neighbors.
Wow….
@native: I include the 6.2% SOCIALism Security tax that I’ve paid for more than 50% as part of my annual tithing amount. The snowflakes who fail to save or invest and then want to rely on the GOVERNMENT are the problem — not me. #StopSocialism #MAGA
You call Social Security “socialist,” but in the same breath admit it was a “great idea” when Baby Boomers were entering the workforce. The truth is, the idea still works. The problem isn’t the program — it’s the politicians who raided it, treating it like a slush fund and “borrowing” over $2.7 trillion from the Social Security Trust Fund to pay for other government spending — money that still hasn’t been fully paid back.
Social Security is not a handout. It’s a system funded by workers who pay into it every paycheck. It’s earned insurance — not welfare — and it has kept millions of seniors, disabled Americans, and survivors out of poverty for nearly 90 years.
Maybe you’re bitter because you won’t qualify for much — or at all. But that’s not a reason to attack people who did their part. And if you’re relying on Medicaid instead, you should know your favorite president is already cutting it — and he’s coming for Medicare next. That’s not rhetoric. It’s already happening.
And let’s talk about “socialism.” If you’re serious about ending all “socialist” programs, then you better be ready to give up:
• Public roads and highways
• Police and fire departments
• Public schools and libraries
• The U.S. military
• Medicare and Medicaid
• Veterans benefits
• The GI Bill
• Emergency services and disaster relief
• Clean water, sanitation, and food safety regulations
These are publicly funded, collectively managed systems — the very definition of what you’re calling “socialist.”
Millions of people — especially in red states — will suffer if these programs are destroyed. Not just seniors, but children, veterans, and working families. And Trump doesn’t care. He wants your loyalty and your money.
And yet… he is choking the life out of you.
Paying into Social Security is mandatory for anyone who earns a paycheck — it’s not optional. I think what you’re trying to say is that there are fewer young workers paying into the system today compared to the number of retirees drawing benefits. That is true. The working public has done nothing to endanger future SS payments, but the federal government has. As I said in my original reply, there is an easy fix this and a particular political party has no interest fixing this and the other does.
@Chris the SOCIALism Security system only works if more people pay in, than take out. As I said, the only real fix is to either cut benefits and raise the age (which lowers the outflow) or raise taxes on workers (which raises the inflow). It’s really that easy, if we want to perpetuate the reliance on government.
The USA needs Social Security for the elderly at 62 years old, and upward, for those who paid into it by working their whole lives. It is our money! Keep Social Security for the elderly!