If you do, I’m impressed! He’s better known by his name and the ‘investment strategy’ that he created. Meet Charles Ponzi, creator of the Ponzi Scheme.
Let me share the definition of a Ponzi Scheme as the Securities & Exchange Commission website defines it:
A Ponzi scheme is an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors.
Here are some characteristics of this frowned-upon scam:
- Promises high rates of return with little risk to investors.
- Generates returns for older investors by acquiring new investors.
Ponzi Schemes have similarities to a pyramid scheme – both are based on using new investors’ funds to pay the earlier backers, and eventually, there isn’t enough money to go around – and the schemes unravel.
This is actually the same model that our Social Security system is built upon.
Former Texas governor Rick Perry ran for president and got into some trouble with the media for calling out the similarities. Regardless of how you feel about his political stances, you can’t deny that he has a point.
Here are some figures about Social Security – then vs. now.
In 1935, when this entitlement program began, the number of workers to retirees was 42:1 – meaning enough workers were paying into the system to cover retirees. The earliest age you could collect back then was 65, and the average life expectancy was 62. Those who did collect averaged two years.
Now? The number of workers to retirees is just 3:1. You can start collecting as early as 62 – and the average number of years a person will collect benefits is 23.
That’s how this not-a-Ponzi-scheme falls apart. Eventually, it’s likely that there will be a dramatic shift in how Social Security is handled because it’s simply not sustainable as is. Psst, it’s probably going to involve a tax hike.
You can have your cake, and eat it too, though. If you want to talk to a professional about how to plan for collecting social security and minimizing your taxes in retirement, then we should talk.
It’s not hard to get started. All you have to do is call 513-563-PLAN (7526) (or click here to book online). Talk soon?
Nikki Earley, CFP®