When Social Security was implemented, the maximum amount any one person paid into the system was $60 per year—a total of two percent from employee and employer of a maximum $3000 per year. Today, the percentage is around 14% on $80,000+ per year. This compulsory “tax” is said to be a “contribution,” as in the “employers contribution portion of Social Security.” Try telling the Social Security Administration that you no longer want to “contribute.” The Government’s role in Social Security is like the Berlin Wall. East Berliners wanted freedom so badly, that they escaped to the West. So many wanted to escape from the lack of freedom in the east that a wall was erected to keep them in. If Social Security is such a good deal for everyone, then why is it that so many people want out?

Government officials who enacted SS legislation exempted themselves from the program and developed their own private but voluntary retirement program. If a private plan was such a good deal for those who created the system, then why wasn’t an employee-owned retirement plan good for everyone? In 1983, this exemption was stopped. All new government employees and non-profit groups, including churches but not pastors who wanted to opt of social security, had to participate in the SS program. Churches and non-profit groups protested but to no avail. They had very little political muscle to object. Congress was politically smart by legislating that only new government employees had to join the system. These new employees did not exist at the time the new law went into effect, so they could not protest.

The Social Security Administration estimates that those born in 1877 (and retiring in 1942) got an average of 36.5 percent real rate of return on their Social Security contributions, while those born in 1950 will receive on average a 2.2 percent return. Those born in 1975 will get 1.8 percent return. It’s even worse for future workers. The government should have seen this coming when Ida Fuller received her first Social Security check:

Ida Fuller was the living (and dying) example of the built-in flaw of the Social Security program [beside the fact that government has no business forcing people to save]. Ida Fuller received her very first Social Security check, issued by the United States, on January 31, 1940. Thirty-four years and $20,000 in retirement benefits later, she died at the age of 100. Her total “contribution” to the program: $22. Her first check, $22.54, matched her total “investment” in the program.[1]

In 1935, there were 45 people paying into SS for every one person receiving benefits. Today, that ratio is about three to one.[2] Is it any wonder the SS has been described as the “world biggest chain letter”?

“The World’s Biggest Chain Letter—Unless You’re the Government”: Social Security is a pay-as-you-go retirement program. Those paying in now are paying those receiving benefits now. Social Security works like a chain letter. Some people have described SS as a “Ponzi scheme,” named after Charles Ponzi, a con artist who bilked people of a lot of money. How did he do it? He would tell people that he would pay them a huge return on their investment within a few months. Then he would take their money and pay off the previous investors. It worked great for the first ones to (unknowingly) get in on the scheme. Ponzi then used his early “investors” as testimonials to attract new “investors.” After a time, the number of investors ran out, and so did Ponzi with their money. Ponzi had worked the “pyramid scheme”: the people at the top (those who get in early) receive the benefits that are being paid in from those at the bottom (those getting in late). The following appeared in Parade Magazine (March 28, 1976): “Social Security is a wonderful plan. People say it’s going bankrupt. Don’t believe them. It works. I know. My uncle reached 65 and he sent in the appropriate forms. In a week he received a wonderful letter: “Dear Mr. Gold. Welcome to the Social Security System. Attached is a list of ten names. Just send $100 to each name on the list and retype up a new list with your name at the bottom. But remember, don’t break the chain!’”[3]

If a private insurance company operated this way, the directors would be arrested, tried, and sent to prison for a long time.

In 1981, employees of Galveston County, Texas, chose to leave SS for a private alternative. At first, not everyone was in favor of the innovative idea. The unions (naturally) opposed it. Employees deposited approximately the same amount of money in private accounts. To date, the funds have achieved an average 8.64 percent annual rate of return since inception.Many of these retirees are millionaires today, living off the interest and free to pass on their estate to their children. This can never happen under Social Security.

Consider this scenario: A man and his wife have paid into SS since the first day they went to work—forty-five years of SS payments. They both reach retirement age on the same day. On the way to the mail box to pick up their first checks, they are killed by a drunk driver. Their estate gets nothing. The money is lost.


[1] Gary North, Government By Emergency (Ft. Worth, TX: American Bureau of Economic Research, 1983), 8
[2] James M. Pethokoukis, “Boomer Burden,” U.S. News & World Report (January 17, 2005), 46. [3] Quoted in North, Government by Emergency, 4-5.