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Top Five Obvious Reasons Why Social Security is Not a Ponzi scheme

Is the United States’ Social Security really a “Ponzi scheme”? This question has been the recurring query of many Americans since certain U.S. Presidential-hopefuls tackled the issue. Many people may not be well-aware and acquainted with the definition of Ponzi scheme. Additionally, they may not be able to connect the dots between Social Security and Ponzi scheme.

What is Ponzi scheme?

In order to sufficiently comprehend the issue regarding Social Security being a Ponzi scheme, the first step to do is to learn the working definition “Ponzi scheme.”

The U.S. Securities and Exchange Commission (SEC) defines Ponzi scheme as an investment fraud that does pay returns to investors through their own money rather than from the profit earned by the group or organization. Additionally, SEC claims that Ponzi scheme organizers tend to solicit new investors by promising to invest funds in opportunities that may generate high returns with petty or no possible risk.

What is Social Security?

To be able to clearly differentiate Ponzi scheme from Social Security, the latter should also be defined properly. According to Social Security Administration (SSA), Social Security is the comprehensive program by the U.S. Federal government that provides workers and their dependents with retirement, disability, survivors, and other payments. The funding for these payments comes from Social Security taxes.

Pursuant to Social Security Act of 1935, the Social Security Administration is responsible for administering Social Security and its benefits programs, these include:

  • Social Security Disability Insurance (SSDI)
  • Supplemental Security Insurance (SSI)
  • Survivors Benefits
  • Retirement Benefits

Is Social Security a Ponzi scheme?

Basing on the legal definitions of Ponzi scheme and Social Security, it is relatively difficult to brand Social Security as a fraudulent activity. The following are the reasons why it is highly-unlikely that Social Security is a Ponzi scheme:

  1. In Ponzi scheme, participation is generally voluntary, and in Social Security, participation is mandatory for most Americans.
  2. Ponzi scheme participants usually do not lose their claim against fraud organizers, unlike people who pass away prior to receiving payment from Social Security.
  3. Ponzi scheme organizers normally have no solid assets that can be claimed by participants, on the other hand, Social Security have almost endless assets signed by the SSA.
  4. Ponzi schemes are organized by fraud artists, and the Social Security is legally managed by the U.S. Federal government through the SSA.
  5. Ponzi schemes are illegal, unlike the Social Security that is legal and has helped and continues to assist many Americans.
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