Social Security has been correctly described as a Ponzi scheme. The government uses the program’s taxes it collects today from future retirees to pay the benefits of current ones. 

Conman Charles Ponzi did the same thing in the 1920s. He took advantage of the difference between U.S. and foreign currencies used to buy international stamp coupons. Ponzi told investors they could double their money in 90 days and guaranteed them 50% returns in just 45 days. Bernie Madoff basically repeated the scheme in his $65 billion fraud.

Notable differences exist between Social Security and the conmen, of course. First, Social Security is mandatory. You have no choice but to contribute. Second, when the program starts to run out of money, the government just raises your taxes.

When Social Security started, the tax for both workers and employers was just 1% on the first $3,000 of wages earned. Today, both workers and employers pay 6.2% on all of their wages. Moreover, there is a smaller pool of workers today supporting a growing number of retirees. There were approximately 42 workers for every retired person at the start, but today that number has shriveled to just three-to-one. 

Doubting Social Security’s survivability isn’t surprising. The program is simply unsustainable. According to a Nationwide Financial survey, nearly three-quarters of all Americans believe Social Security will run out of funding in their lifetime. That feeling was greatest amongst Gen Z and Millennials (77% and 79%, respectively), but even two-thirds of Baby Boomers expect the program to fail.

Why is 24/7 Wall St. covering this:

• Social Security is a security blanket for millions of Americans who rely upon the program to meet at least a portion of their bills in retirement.
• Between 80% to 90% of Americans rely at least in part on Social Security to survive, yet the sustainability of the program is in grave doubt.
• Individuals need a backup plan in the event Social Security collapses, as all confidence schemes like those run by Charles Ponzi and Bernie Madoff do.

Planning for the inevitable

Since most respondents are not expecting there to be enough money for their retirement, Americans are planning for that eventuality. While one in five expect Social Security to run out of money are not doing anything different, the rest are taking eight specific steps in anticipation of not receiving a dime from Social Security.

• Cut down on current expenses. Some 41% of all those surveyed said they were cutting back on spending. That’s always a good idea, no matter the situation. Living below your means should be the goal of everyone.
• Work part-time in retirement. Some 37% said they would work part-time in retirement. It’s tricky because retirees, depending upon what age they take Social Security benefits, could be penalized by having their benefits reduced. Of course, since these individuals aren’t counting on Social Security being there for them, this may become a necessity.
• Increase contribution to 401(k). Another 32% said they are increasing their 401(k) contributions, a smart financial move to make regardless of Social Security’s future. This should be everyone’s goal.
• Seek out investments to protect retirement income. One-fifth of those surveyed are looking into investments such as annuities, permanent life insurance, or target date collective investment funds that protect your money during downturns while providing lifetime income.
• Work a second job. Similar to working part-time, 17% expect to need a second job to provide them with enough money to survive.
• Move to another location. Finding a cheaper place to live is a goal of 12% of those surveyed. The average American household spends over $61,000 a year on expenses. Moving to cheaper states like Mississippi, Oklahoma, and Kansas is a viable option. 
• Negotiate with employer for better retirement savings benefits. Some 9% of respondents hope they can convince their employees to offer better retirement savings options so they can keep working at their job. This could be the hardest goal to achieve.
• Seek a new employer offering better retirement benefits. A similar percentage seem to understand the difficulty of changing an employer’s benefits and are seeking out employers already offering those better retirement savings benefits.

Essential takeaways

When planning for your retirement, it’s best to imagine Social Security won’t be there for you. Live below your means, avoid debt like the plague, and maximize your investments so that they will be sufficient to care for you in retirement. That way, if Social Security happens to survive and offer you benefits, it’s like found money rather than a life raft to cling to.

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