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Social SecurityWhen will I be able to retire?

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The Two Faces of Social Security

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The Dishonest Face

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Many Americans believe that Social Security is an integral part of our free enterprise system, but it is neither American nor free enterprise. The original Social Security system was created by the Prussian/German leader Otto von Bismarck in 1883. Bismarck was looking for a way to win the support of the working people, who were unhappy with the high taxes needed to support the large German military and the high prices created by the government- protected industrial cartels.

THE PRUSSIAN MODEL

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Otto von Bismarck wanted to find a way to con people into believing that they were going to get something from the state, without its actually having to deliver. He asked an actuary how long most people could be expected to live. The answer was 65 years. Bismarck then set the age of eligibility for his social security system at 65, knowing full well that most of the people would have died before they received a dime from the system. In spite of this, the system was wildly popular.

Setting Up The System

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The Prussian concept of Social Security was an authoritarian one - based on the false premise that people are incompetent to look after their own affairs and need a paternalistic socialist state to force them to provide for their own retirement.

The Command Society PhilosophyThe Government will be with you from cradle to grave.

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“Market economies are dedicated to the principal that in the first instance people are responsible for their own welfare … market itself disciplines inefficient firms.”

- Hovenkamp

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The Origins of Social Security

In the US during the 1930s, President Franklin D. Roosevelt was looking for a way to gain the support of the working people who were unhappy with the continuing Great Depression and the high taxes needed to support his New Deal programs. So the Social Security program was created in 1935 (just in time for the 1936 elections).

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Originally Social Security was supposed to be a supplemental income retirement plan.

However the people would not buy in to that idea. So social security was sold to us as a fully funded pension plan.

Pension Plan or Insurance Policy

Social Security was sold to the American people as a fully funded pension plan.

Republican and Democrat politicians tell us that the money each employee "contributes" to Social Security goes into a "trust fund." The money from this fund is "invested" in federal government bonds. Upon retirement, the "reserve" made up of "contributions" and the interest on the bonds would be used to pay benefits to the retiree.

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In practice, it is a "Ponzi scheme." Historian Mark Knutson, writes that in the summer of 1920, [Charles K.] Ponzi claimed he was giving investors just a portion of the 400% profit he was earning through trade in postal reply coupons. As Ponzi paid the matured notes held by early investors, word of enormous profits spread through the community, whipping greedy and credulous investors into a frenzy. Investigation later revealed that there were no coupons or profits - earlier notes werepaid at maturity from the proceeds of later ones. The simplicity and grand scale of his scheme linked Ponzi's name with a particular form of fraud.

This type of fraud is called a pyramid scheme. To pay off earlier "investors" in such a scheme, an ever larger number of participants must to be added.

In Reality Social Security is a form of "insurance.“(Not a fully funded pension plan.)

From the beginning, in spite of the claims that it was an old-age insurance program, Social Security paid its benefits from current cash flow, rather than paying benefits out of interest accrued on a reserve fund as a private pension plan would do. As Social Security taxes were paid into the system, the funds were immediately doled out to beneficiaries. As more taxpayers retired, they would be paid from the money taken from younger taxpayers - just like Ponzi's investors.

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Insurance Plan Or Ponzi SchemeYou Decide?

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The mathematics of Social Security

How Social Security Really Works

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Income 2,019 Billion48% Individual Income Taxes34% Social Security10% Corporate Income Tax 4% Excise Tax 4% Other 100% Total

2001 Federal Budget

Expenses 1,835 Billion23% Social Security16% Defense Spending – War19% Non-Defense Discretionary 11% Interest Payments on Previous Debt12% Medicare 6% Entitlements 6% Other Mandatory 7% Medicare 100% Total 184 Billion Budget Surplus

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Expenses 1,835 Billion23% Social Security16% Defense Spending – War19% Non-Defense Discretionary 11% Interest Payments on Previous Debt12% Medicare 6% Entitlements 6% Other Mandatory 7% Medicare 100% Total 184 Billion Budget Surplus

Income 2,019 Billion48% Individual Income Taxes34% Social Security10% Corporate Income Tax 4% Excise Tax 4% Other 100% Total

2001 Federal Budget

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Social Security Act of 1935

Social Security was only designed to supplement your income.1. Raise Age to Collect

2. Reduce Benefits

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In the early 1970s, a federal law known as ERISA (Employment Retirement Income Security Act) was passed after it was found that many corporate pension plans were paying current beneficiaries directly from current contributor's funds. When income declined, the corporate pension plans were terminated - just like the late investors in Ponzi's scheme. (The whole idea that businesses should handle employee savings due to federal tax preferences helped create this problem in the first place.) Under ERISA, any employer who failed to fully fund its pension plan could be held criminally liable.

ERISA (Employment Retirement Income Security Act)

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It is illegal for a private company to set up their employee retirement plans in the same manner as the Federal Government set up Social Security.

Company Pension Plans

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Charles Ponzi went to prison. But the politicians who run Social Security are not held liable for what is normally considered criminal behavior.

Business As Usual Or Criminal Behavior

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Bernie Madoff pleaded guilty to 11 federal crimes and admitted to running a massive Ponzi scheme. On June 29, 2009, he was sentenced to 150 years in prison.

Bernie Madoff

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There are other structural flaws with this system. First of all, people began to live longer. Whereas in 1883 most people died by the age of 65, by the late 20th Century people were living an average of a decade longer. (75+) This meant a huge increase in potential beneficiaries. When the Social Security program began in 1935, there were 16 contributors for every retiree, but a decline in the birth rate paralleling the increase in longevity has dropped the ratio of workers to retirees to only 3 to 1 in the 1990s.

Healthier Lifestyles Promote Longer Life Expectancy

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But that is only the tip of the iceberg. Once the Baby Boomers (born 1946-1964) start retiring, the ratio will shrink even more. Estimates are that there will be only two workers for every retiree by the year 2025. Social Security taxes alone will have to exceed 22% of each worker's income by that point. (Plus a compulsory matching amount paid by employers.)

Trouble Ahead

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Costs Will Equal Benefits In The Near Future

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Social Security has become a punching bag of sorts within the Republican presidential field after decades as the untouchable third-rail of politics.

Texas Gov. Rick Perry called it a “monstrous lie” and a “Ponzi scheme.”  Mitt Romney said in his book that the government was “defrauding” the American people and in a 2010 interview with Fox News Michele Bachmann said it was a “tremendous fraud.”

But while there is broad agreement that the retirement program needs reforms, there is little consensus on how to fix it. According to Congressional estimates, the Social Security trust find will run out of cash in 2037 — the disability program in 2017.

Texas Gov. Rick Perry says Social Security is a Ponzi scheme

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Typical proposals to "reform" Social Security have been

built around increasing taxes. The 1983 Social Security tax increase was supposed to create a reserve fund of $10 trillion by the year 2030. However, since 1967 Congress has been raiding up to $70 billion each year from the Social Security fund to hide part of their massive deficit spending. Thus the Social Security trust fund is filled with IOUs in the form of Treasury Bonds. The interest on these bonds must be paid by you, the taxpayer.

Politicians Can change the Rules Anytime They Want

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The Honest Face

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The Social Security Plan

• The Nuts and Bolts of Social Security.

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Social Security

•You must earn 40 credits to be eligible. You can earn a total of 4 credits per year. (4 credits per year for 10 years.)

A. You must earn $1,050 per quarter for 1 credit. ($4,200 per year)

B. You can have gaps in your work history.•Social Security pays about 42% of your wages on average.•You can start to receive payments at 62 years of age.•You can receive Social Security as a naturalized citizen, as long as you meet the above criteria.

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Uncle Sam Gets Your Social Security Numbers From Your Income TaxWhich is why it is important to pay your taxes

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Your Earning Twice As Much As You ThinkYour employer is matching your benefits

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The Secret Social Security Formula

Are you smarter than a fifth-grader. Who thought this stuff up?

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Social Security Takes Your Three Highest Years Earnings

30K + 35K + 40K = 35K * .42 = $14,780 3 /12 = $1,232

Full Time Worker

Part-time Worker

5K + 5K + 5K = 5K * .42 = $2100 3 /12 = $175

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Social Security tax is charged on earnings up to $106,800.00 at a rate of 6.2%, 0% after that.

Technically Social Security is a flat tax of 6.2% to $106,800.00 then becomes regressive.

Minimum Social Security benefit = 0

Maximum Social Security Benefit

$106,800.00 + $106,800.00 + $106,800.00 = $106,800.00 * .42%. = $44,856.00 3

Social Security Is A Regressive Tax

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When You Earned Enough Credits to Retire The Social Security Administration Sends You A Yearly Estimate Of Your Benefits

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Medicare deducts 1.45% of your paycheck to cover medical bills during retirement.

Additional Benefits That Are Being Taken Out Of Your Paycheck

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Medicare Currently Covers Around 50% of Medical Bills

•You must have worked 10 years in a job covered by Social Security.•You must be 65 or over.•If you are not 65 you could be covered if you are permanently and totally disabled or if you have end stage renal disease. (Kidney Failure)•You must fill out an application form 6 months before coverage. (Age 65)•The social Security Administration determines if you are eligible for Medicare.

1.If they determine yes – you immediately become the responsibility of the Health Care Financing Administration. (HCFA) 2.If they determine no – you have the right to appeal.

6. You can purchase Medicare if you are over 65 and don’t qualify.

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You should consider social security a supplemental income insurance policy. Social Security will help you with some income to retire but will not cover all of your expenses. (You need a Plan)

How Should I Deal With Social Security

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Contribute

Don’t Contribute to your IRA vs. Contribute To IRA

$2000 Contribution, Assume 30% tax rate$2000 * .30 = $600 Tax liability

Don’t Contribute

$2000 Contribution, Assume 30% tax rate- 600 to Government Add 1400 to IRA account

Government gives you your 600 back 1400 Contribution = 43% ROIReturn on Investment

Open your IRA Today!

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• Traditional IRA• Roth IRA• Keogh Plan• Company Retirement Plan• 401(k) Plan• Profit Sharing Plan

Getting Married SoonUse Your IRA To Purchase A House

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Your Contribution Spouses Contribution

5 Years * $2,000 = 10,000 5 Years * $2,000 = 10,000

600 * 5 = $3,000 Government’s 600 * 5 = $3,000 Government’s Contribution Contribution

$10,000 + $10,000 + Interest

Equals $20,000+ After Five Years

Confirm all tax decisions with your tax advisor.

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Works Cited

http://www.free-market.net/resources/lit/time-to-end-ss.htmlIT'S TIME TO END SOCIAL SECURITY Why the System is Bankrupt - and How We Can Replace Itby George L. O'Brien edited by Mark Valverde and James R. Elwood