- Social Security was originally created in Germany in 1883 by Otto von Bismarck as a way to gain popular support. He set the retirement age much higher than average life expectancy at the time. - In the US, Franklin D. Roosevelt created Social Security in 1935 to gain popular support during the Great Depression. However, it has become a "Ponzi scheme" that relies on new contributions to pay existing beneficiaries rather than individual accounts. - As people live longer and the population ages, the ratio of workers to beneficiaries is declining, threatening the program's viability without reforms. Politicians have raided Social Security funds and there are concerns about its long-term funding and structure.

1. ECO 101
When will I be able to retire?

2. ECO 101

3. ECO 101

4. ECO 101
Many Americans believe that Social Security is an integral part of our free enterprise
system, but it is neither American nor free enterprise. The original Social Security system
was created by the Prussian/German leader Otto von Bismarck in 1883. Bismarck was
looking for a way to win the support of the working people, who were unhappy with the
high taxes needed to support the large German military and the high prices created by the
government- protected industrial cartels.
THE PRUSSIAN MODEL

5. ECO 101
Otto von Bismarck wanted to find a way to con people into
believing that they were going to get something from the state,
without its actually having to deliver. He asked an actuary how
long most people could be expected to live. The answer was 65
years. Bismarck then set the age of eligibility for his social
security system at 65, knowing full well that most of the people
would have died before they received a dime from the system.
In spite of this, the system was wildly popular.
Setting Up The System

6. ECO 101
The Prussian concept of Social Security was an authoritarian one - based on the false
premise that people are incompetent to look after their own affairs and need a paternalistic
socialist state to force them to provide for their own retirement.
The Command Society Philosophy
The Government will be with you from cradle to grave.

7. ECO 101
 “Market economies are dedicated to the principal that in the first
instance people are responsible for their own welfare … market
itself disciplines inefficient firms.”
- Hovenkamp

8. ECO 101
The Origins of Social Security
In the US during the 1930s, President Franklin D. Roosevelt was
looking for a way to gain the support of the working people who
were unhappy with the continuing Great Depression and the high
taxes needed to support his New Deal programs. So the Social
Security program was created in 1935 (just in time for the 1936
elections).

9. ECO 101
Originally Social Security was supposed to be a supplemental income retirement plan.
However the people would not buy in to that idea. So social security was sold to us as a
fully funded pension plan.
Pension Plan or Insurance Policy

10. Social Security was sold to the American people as a fully funded pension plan.
Republican and Democrat politicians tell us that the money each
employee "contributes" to Social Security goes into a "trust fund." The
money from this fund is "invested" in federal government bonds. Upon
retirement, the "reserve" made up of "contributions" and the interest on
the bonds would be used to pay benefits to the retiree.
ECO 101

11. ECO 101
In practice, it is a "Ponzi scheme." Historian Mark Knutson, writes that in the summer
of 1920, [Charles K.] Ponzi claimed he was giving investors just a portion of the
400% profit he was earning through trade in postal reply coupons. As Ponzi paid
the matured notes held by early investors, word of enormous profits spread through
the community, whipping greedy and credulous investors into a frenzy. Investigation later
revealed that there were no coupons or profits - earlier notes were
paid at maturity from the proceeds of later ones. The simplicity and
grand scale of his scheme linked Ponzi's name with a particular
form of fraud.
This type of fraud is called a pyramid scheme. To pay off earlier "investors" in such
a scheme, an ever larger number of participants must to be added.
In Reality Social Security is a form of "insurance.“
(Not a fully funded pension plan.)

12. From the beginning, in spite of the claims that it was an old-age insurance
program, Social Security paid its benefits from current cash flow, rather
than paying benefits out of interest accrued on a reserve fund as a private
pension plan would do. As Social Security taxes were paid into the
system, the funds were immediately doled out to beneficiaries. As more
taxpayers retired, they would be paid from the money taken from younger
taxpayers - just like Ponzi's investors.
ECO 101
Insurance Plan Or Ponzi Scheme
You Decide?

13. ECO 101
The mathematics of Social Security
How Social Security Really Works

14. ECO 101
Income 2,019 Billion
48% Individual Income Taxes
34% Social Security
10% Corporate Income Tax
4% Excise Tax
4% Other
100% Total
2001 Federal Budget
Expenses 1,835 Billion
23% Social Security
16% Defense Spending – War
19% Non-Defense Discretionary
11% Interest Payments on Previous Debt
12% Medicare
6% Entitlements
6% Other Mandatory
7% Medicare
100% Total
184 Billion Budget Surplus

15. ECO 101
Expenses 1,835 Billion
23% Social Security
16% Defense Spending – War
19% Non-Defense Discretionary
11% Interest Payments on Previous Debt
12% Medicare
6% Entitlements
6% Other Mandatory
7% Medicare
100% Total
184 Billion Budget Surplus
Income 2,019 Billion
48% Individual Income Taxes
34% Social Security
10% Corporate Income Tax
4% Excise Tax
4% Other
100% Total
2001 Federal Budget

16. ECO 101
Social Security Act of 1935
Social Security was only designed to supplement your income.
1. Raise Age to Collect
2. Reduce Benefits

17. ECO 101
In the early 1970s, a federal law known as ERISA (Employment Retirement Income
Security Act) was passed after it was found that many corporate pension plans were
paying current beneficiaries directly from current contributor's funds. When income
declined, the corporate pension plans were terminated - just like the late investors in
Ponzi's scheme. (The whole idea that businesses should handle employee savings
due to federal tax preferences helped create this problem in the first place.) Under
ERISA, any employer who failed to fully fund its pension plan could be held criminally
liable.
ERISA (Employment Retirement Income Security Act)

18. ECO 101
It is illegal for a private company to set up their employee retirement plans in the same
manner as the Federal Government set up Social Security.
Company Pension Plans

19. ECO 101
Charles Ponzi went to prison. But the politicians who run Social Security are not held
liable for what is normally considered criminal behavior.
Business As Usual Or Criminal Behavior

20. ECO 101
Bernie Madoff pleaded guilty to 11 federal crimes and admitted to
running a massive Ponzi scheme. On June 29, 2009, he was sentenced
to 150 years in prison.
Bernie Madoff

21. ECO 101
There are other structural flaws with this system. First of all, people
began to live longer. Whereas in 1883 most people died by the age of
65, by the late 20th Century people were living an average of a decade
longer. (75+) This meant a huge increase in potential beneficiaries.
When the Social Security program began in 1935, there were 16
contributors for every retiree, but a decline in the birth rate paralleling
the increase in longevity has dropped the ratio of workers to retirees to
only 3 to 1 in the 1990s.
Healthier Lifestyles Promote Longer Life Expectancy

22. ECO 101
But that is only the tip of the iceberg. Once the Baby Boomers (born 1946-1964) start
retiring, the ratio will shrink even more. Estimates are that there will be only two workers
for every retiree by the year 2025. Social Security taxes alone will have to exceed 22% of
each worker's income by that point. (Plus a compulsory matching amount paid by employers.)
Trouble Ahead

23. ECO 101
Costs Will Equal Benefits In The Near Future

24. ECO 101
 Social Security has become a punching bag of sorts within the Republican presidential field
after decades as the untouchable third-rail of politics.
 Texas Gov. Rick Perry called it a “monstrous lie” and a “Ponzi scheme.” Mitt Romney said
in his book that the government was “defrauding” the American people and in a 2010
interview with Fox News Michele Bachmann said it was a “tremendous fraud.”
 But while there is broad agreement that the retirement program needs reforms, there is little
consensus on how to fix it. According to Congressional estimates, the Social Security trust
find will run out of cash in 2037 — the disability program in 2017.
Texas Gov. Rick Perry says Social Security is a
Ponzi scheme

25. ECO 101
Typical proposals to "reform" Social Security have been
built around increasing taxes. The 1983 Social Security
tax increase was supposed to create a reserve fund of $10
trillion by the year 2030. However, since 1967 Congress
has been raiding up to $70 billion each year from the
Social Security fund to hide part of their massive deficit
spending. Thus the Social Security trust fund is filled with
IOUs in the form of Treasury Bonds. The interest on these
bonds must be paid by you, the taxpayer.
Politicians Can change the Rules Anytime They Want

26. ECO 101

27. ECO 101
The Social Security Plan
• The Nuts and Bolts of Social Security.

28. ECO 101
Social Security
•You must earn 40 credits to be eligible. You can earn a total of 4 credits per year.
(4 credits per year for 10 years.)
A. You must earn $1,050 per quarter for 1 credit. ($4,200 per year)
B. You can have gaps in your work history.
•Social Security pays about 42% of your wages on average.
•You can start to receive payments at 62 years of age.
•You can receive Social Security as a naturalized citizen, as long as you meet the
above criteria.

29. ECO 101
Uncle Sam Gets Your Social Security Numbers From Your Income Tax
Which is why it is important to pay your taxes

30. ECO 101
Your Earning Twice As Much As You Think
Your employer is matching your benefits

31. ECO 101
The Secret Social Security Formula
Are you smarter than a fifth-grader. Who thought this stuff
up?

32. ECO 101
Social Security Takes Your Three Highest Years Earnings
30K + 35K + 40K = 35K * .42 = $14,780
3 /12 = $1,232
Full Time Worker
Part-time Worker
5K + 5K + 5K = 5K * .42 = $2100
3 /12 = $175

33. ECO 101
Social Security tax is charged on earnings up to $106,800.00 at a rate of 6.2%, 0% after
that.
Technically Social Security is a flat tax of 6.2% to $106,800.00 then becomes regressive.
Minimum Social Security benefit = 0
Maximum Social Security Benefit
$106,800.00 + $106,800.00 + $106,800.00 = $106,800.00 * .42%. = $44,856.00
3
Social Security Is A Regressive Tax

34. ECO 101
When You Earned Enough Credits to Retire The Social Security
Administration Sends You A Yearly Estimate Of Your Benefits

35. ECO 101
Medicare deducts 1.45% of your paycheck to cover medical bills during
retirement.
Additional Benefits That Are Being Taken Out Of Your Paycheck

36. ECO 101
Medicare Currently Covers Around 50% of Medical Bills
•You must have worked 10 years in a job covered by Social Security.
•You must be 65 or over.
•If you are not 65 you could be covered if you are permanently and totally disabled or if you have end
stage renal disease. (Kidney Failure)
•You must fill out an application form 6 months before coverage.
(Age 65)
•The social Security Administration determines if you are eligible for Medicare.
1.If they determine yes – you immediately become the responsibility of the Health Care Financing
Administration. (HCFA)
2.If they determine no – you have the right to appeal.
6. You can purchase Medicare if you are over 65 and don’t qualify.

37. ECO 101
You should consider social security a supplemental income insurance policy.
Social Security will help you with some income to retire but will not cover all of
your expenses. (You need a Plan)
How Should I Deal With Social Security

38. ECO 101
Contribute
Don’t Contribute to your IRA vs. Contribute To IRA
$2000 Contribution, Assume 30% tax rate
$2000 * .30 = $600 Tax liability
Don’t Contribute
$2000 Contribution, Assume 30% tax rate
-600 to Government
Add 1400 to IRA account
Government gives you your 600 back
1400 Contribution = 43% ROI
Return on Investment

39. Open your IRA Today!
ECO 101
• Traditional IRA
• Roth IRA
• Keogh Plan
• Company Retirement Plan
• 401(k) Plan
• Profit Sharing Plan

40. Getting Married Soon
Use Your IRA To Purchase A House
ECO 101
Your Contribution Spouses Contribution
5 Years * $2,000 = 10,000 5 Years * $2,000 = 10,000
600 * 5 = $3,000 Government’s 600 * 5 = $3,000 Government’s
Contribution Contribution
$10,000 + $10,000 + Interest
Equals $20,000+ After Five Years
Confirm all tax decisions with your tax advisor.

41. ECO 101
Works Cited
http://www.free-market.net/resources/lit/time-to-end-ss.html
IT'S TIME TO END SOCIAL SECURITY Why the System is Bankrupt - and How We Can Replace It
by George L. O'Brien edited by Mark Valverde and James R. Elwood