Thursday, September 22, 2011

Maryland professor explains why Social Security is a Ponzi Scheme; Obama's plan to means test Medicare would start in 2017

Peter Morici, professor at the University of Maryland’s Smith School of Business, has an op-ed on p 19 of the Baltimore Sun Thursday, “Yes, Social Security is a Ponzi Scheme”, link here

It’s a Ponzi scheme because the original beneficiaries never contributed anything for their benefits, back in the 1930s. The system has always depended on more workers to support the mechanism. Because of much longer life spans and fewer kids, it can’t sustain itself.

But privatization, as a defense against possible “expropriation”, isn’t an adequate answer.

Morici gives several reasons, the most interesting is which the original benefits for which beneficiaries made no contributions would need to be recovered, which means that members of future generations must somehow be “stiffed”, whatever the scheme.  

He also says that private investments generally don’t work out that well for “ordinary people”.

He says there is no choice but to raise the retirement age, to about 70 at least, and stop companies from pushing people into early retirement.  (That’s what happened with me in 2001, at age 58.).

I have insisted that Social Security retirement benefits generally behave like an annuity, where the accumulated lifetime  FICA taxes (including self, spouse, and employer) are used to calculate a benefit, in a tiered fashion, however (and subject to other restrictions such as a minimum of 40 covered quarters). 

Yahoo! reproduced a Market Watch article today on the likely course of Obama’s plans for Medicare changes.  A moderate version of means testing would apparently start in 2017, for new retirees, and would particularly affect Medicare Supplemental  (Medigap) and Part D premiums and deductibles, link here

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