Is Social Security a Giant Ponzi Scheme?

Jim Cramer has called Social Security the largest Ponzi scheme in history. To an extent, he's making a valid comparison. Like a Ponzi scheme, Social Security pays its benefits out of new contributions, rather than out of investment returns. Also, like a Ponzi scheme, Social Security is in the process of collapsing under its own weight. According to its most recent annual report, the Social Security trust fund is expected to be exhausted by 2037. With similarities like that, it's no wonder Cramer felt he could make the comparison.

Surely that’s not right?
But Social Security isn't exactly a Ponzi scheme, no matter how similar it may seem on the surface. For one thing, Social Security is a mandatory program. With few exceptions, if you're a working American, you're paying into the system. That helps shore up its foundation far more firmly than a typical Ponzi scheme.

For another, Congress has the authority to increase the taxes you pay into Social Security -- and it has, on numerous occasions. When the program first started, taxes for retirement benefits were set at 2% of the first $3,000 of your earnings (half to be paid by you, half by your employer). That figure now sits at 10.6% of your first $106,800 of income. That's quite an adjustment, and it's a big part of the reason Social Security hasn't collapsed yet.

And of course, while Ponzi schemes attract clients by promising impossibly high returns, Social Security promises no such nonsense. On the contrary, on average, Social Security's promised payout is about the same as a minimum-wage job. Not promising the moon and the stars also helps keep Social Security from quickly falling apart, like a Ponzi scheme would.

It's still not enough
Perhaps the biggest difference between the two is that Social Security admits its shortcomings in a way no Ponzi scheme ever would. Regarding what you can expect from the program, here's what the Social Security Administration itself says:

For an average worker, Social Security replaces about 40 percent of annual preretirement earnings. Since Social Security will only replace part of your lost earnings, your savings and investments play an important role in ensuring adequate income for you and your family.

And even that 40% level won't be reached after the trust fund is exhausted in 2037. Once again, Social Security has this to say on the matter: "Even if modifications to the program are not made, there would still be enough funds in 2037 from taxes paid by workers to pay about $760 for every $1,000 in benefits scheduled."

In other words, you shouldn’t depend on getting more than about 30% of your preretirement earnings from Social Security, starting around 2037.

What can you do?
The traditional thinking was that your retirement would be funded by a "three-legged stool" comprised of Social Security, employer pensions, and your own personal savings. Unfortunately, all three legs are under assault. Not only is Social Security on the rocks, but employer pensions are a vanishing breed as well. And of course, with the market meltdown we've just lived through, you may be wondering whether it's still worth your while to invest.

With the deck seemingly stacked that far against you, is it even worth it to try to retire?

Of course!
Traditional pensions may largely be lost forever, but even under the worst-case scenario, Social Security is still expected to pay some benefits -- about three-quarters of the scheduled amount. And while the market may be down, it's not out. Many publicly traded companies are still profitable and still pay dividends. Over the long haul, earnings and dividends drive stock prices and investors' total returns. So as long as the ability to earn a profit and pay dividends is not forever lost, long-term investors should be able to earn capital gains and investment income.

In fact, even in the short run and amid this economic malaise, there are still strong, profitable businesses that continue to pay their shareholders dividends. Here are just a few:


Earnings Per Share

Dividends Per Share

ExxonMobil (NYSE: XOM  )



Wal-Mart (NYSE: WMT  )



PepsiCo (NYSE: PEP  )



Verizon (NYSE: VZ  )



United Technologies (NYSE: UTX  )



3M (NYSE: MMM  )



Lowe's (NYSE: LOW  )



These companies are making -- and handing out to their shareholders -- this kind of money amid what has been called the worst economy since the Great Depression. That should give you hope for their futures, once a recovery finally takes hold.

At the very minimum, it should help you continue to invest through this mess. After all, your investments make up the one part of the three-legged retirement stool that you control. It'd be a pity to relinquish that control based on a single year's slip-up -- no matter how disastrous that year may have been.

Use the tools you've got
At Motley Fool Rule Your Retirement, we know how frustrating it is to plan your future when the cornerstones upon which it was supposed to be set seem to be crumbling before your very eyes. That's why we'll give you a free 30-day trial to check out our service and see for yourself the tools and strategies we've amassed to help you make the most of the reality we live in today. Simply click here to get started.

At the time of publication, Fool contributor Chuck Saletta owned shares of Lowe's. Lowe's, 3M, and Wal-Mart are Motley Fool Inside Value selections. PepsiCo is a Motley Fool Income Investor pick. The Fool has a disclosure policy.

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Comments from our Foolish Readers

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  • Report this Comment On July 21, 2009, at 4:01 PM, clothesliner wrote:

    So it's even worse than your typical Ponzi scheme because you are forced to contribute, you have no control how much you put in the scheme and the amount can be increased at any time without your consent.

  • Report this Comment On July 21, 2009, at 4:26 PM, intpj wrote:

    Absolutely clothesliner, it is a mandatory ponzi sheme!

  • Report this Comment On July 21, 2009, at 4:31 PM, TMFCop wrote:


    I hear what you're saying but Social Security is a Ponzi scheme nonetheless. Ever since Ida May Fuller got check no. 000-00-001 for $22.54 in 1940 it's been a full-scale operating fraud.

    And while SS no longer promises extraordinary payouts, that doesn't mean they didn't happen. The earliest retirees, just like the earliest dupes in a Ponzi scheme, got huge returns on their "investment."

    Ms. Fuller paid in exactly $49.50 in taxes for Social Security, but collected $22,889 from the system for an astounding 46,000% return!

    Today the program is broke (again) and will because because there are so few workers supporting the system. When Ida got her check, there were 42 workers for every retiree, today the ratio is around 3:1.

    It amounts to little more than a huge generational transfer of wealth from the young to the old and a system of patronage for the politicians.

    To keep the ploy going, they've had to tax benefits, limit benefits, enact means testing, raise the age for full benefits, etc. As is common with most government programs limitations are quickly put in place as the "free money" begins to run out.

    We ought to keep that in mind as the government health care proposal is debated (assuming Obama allows much debate..."We gotta hurry! We can't squander this chance!" Sounds like the TARP debate).

    Once the camel gets its nose under the tent they'll be no getting him back out. Let's see what kind of crappy medical system we end up with then. Probably just as crappy as this so-called "retirement program" that's bankrupting us now.


  • Report this Comment On July 21, 2009, at 4:37 PM, plange01 wrote:

    the entire US government is a giant ponzi security is just a small part of it.the US has been bankrupt for years...where do you think madoff got the idea from?

  • Report this Comment On July 21, 2009, at 4:43 PM, c195 wrote:

    I've have been wondering what the difference was between what Madoff was doing and how social security works! I've always liked to say that if a private company tried to setup a retirement program that worked like social security they would be thrown in jail. The only real difference is the government keeps social security going by force, and the return is known to be poor from the start, with many if not most people never even getting back what they paid in, or at best a measly 1% or 2% return.

  • Report this Comment On July 21, 2009, at 4:45 PM, lindseycotton wrote:

    social security is a ponzi scheme when goverment allow the killing of new born baby's that can't fill the gap to pay for the baby boomers that they look for my generation to pay for the social security benefits. and the goverment borrows against the fund when they can't get a budget passed in congress. sad very sad

  • Report this Comment On July 21, 2009, at 4:50 PM, 63SLLD39HH wrote:


    Not quite a Ponzi. For many years the SS surplus was taken by our great congresses and added to the general fund. When they pay that back with interest,

    (might I suggest 50% per year as the cost for thievery), things might look a lot better.

  • Report this Comment On July 21, 2009, at 4:54 PM, katheter wrote:

    Social Security is a safety net for older Americans. Safe investments don't get high returns as you know. People gripe about it all the time but I've never heard of anyone turning it down, even the well-off Republican friends that I know. And people only pay social security on $100,00, even if they make $500,000. It's vital for people like my 87 year old mother who was widowed at age 57 and never held at job that paid more than Walmart wages. Have you got a better idea? It's certainly safer that investing in stocks. If you get a fat paycheck you can invest in the market for your retirement as well and get the profits you desire along with the risk.

  • Report this Comment On July 21, 2009, at 5:02 PM, JohnnyO wrote:

    Its ridiculous to call it a Ponzi scheme. I paid into SS for 46 years and I have been collecting from it for 8 years.

    It does need some repairs/modifications/reforms. There was a substantial refrom of the SS system in the 1980's. A commission headed by Alan Greehspan made a series of recomendations for changes in the system, which were accepted by Congress and enacted.

    Another commission can be set up to make further reforms, so Isee no reason to beleive that the system will fall apart in 2037

  • Report this Comment On July 21, 2009, at 5:11 PM, Snertie wrote:

    Geeze Chuck! You are just starting to figure this out? Social Security is actually much worse than a Ponzi scheme. At least Madoff's victims had a choice before they lost their money.

    As someone who is not likely to retire before the ratio of workers to payees passes 2:1, I just have to assume that by that point, Social Security will be transformed into just another means-tested welfare program like Medicaid. If you have your own savings, you won't be able to collect it until your cash is gone, and then you'll get to live somewhere well below the poverty level.

    I recently debated someone who questioned the wisdom of privatizing Social Security. Trying to make the point that doing so was folly, they pointed out that my portfolio was perhaps less than 70% of what it was a few years ago. I then had to ask, "And what is the value of the assets backing your mythical Social Security "Lock Box"? Last I heard, each household in America was leveraged by about a half-million and counting. I'll take 70% over less-than-zero any day.

  • Report this Comment On July 21, 2009, at 5:12 PM, TipTopTommyT wrote:

    katheter - i see you're asking if there's a better idea than the SS system...i'd ask: is there a worse idea? Where does the Social Security tax money go? Does it get invested for a return? is spent...there is no Social Security fund. The money will have to be borrowed (ultimately at taxpayer expense, of course) to pay beneficiaries. If a private company ran their pension fund like the SS system...its board would be in jail.

    katheter - you say even your Republican friends don't turn it down...well Congressional Democrats are proportionally the richest party and they've resisted every attempt to make Social Security accountable to the American people.

    Why not stop spending the SS receipts and at least use the Thrift Savings Plan model (which is offered to all federal employees) for investing the funds and a conservative percentage of the portfolio could even be required.

  • Report this Comment On July 21, 2009, at 5:13 PM, ScottTaylor wrote:

    Whatever the merits or not of Social Security, it is clearly *not* a Ponzi scheme, at least not by definition. A Ponzi scheme works by recruiting new "investors" who pay up the line to earlier "investors". Eventually you run out of "investors" (and available money), so the scheme falls apart. Social Security uses a completely different concept. A fixed group of "contributors" (working taxpayers, in this case) pays into a pool of funds, which is then distributed to a different, fixed group of "recipients" (retirees, in this case). As long as new wealth is being created (i.e., people keep working), no theoretical limit exists to the solvency of such a program. It is no different from any other collective program, such as funding the military or schools. The problem with Social Security is that the distribution strategy has not kept pace with major changes to the population of the recipients relative to the contributors. Social Security (unlike a Ponzi scheme) can be fixed immediately, without new taxes, by (a) scaling back benefit levels or (b) raising the retirement age. Perhaps one approach which should be considered is basing the group of recipients on a certain percentile (e.g., the oldest 10% of the total population) instead of a fixed age, which has proven to be problematic with the medical advances of the past century.

  • Report this Comment On July 21, 2009, at 5:19 PM, Biergeliebter wrote:

    One thing was left out of this article. Social Insecurity is also the only retirement fund that could be paid into for over 50 years and net a negative return.

    Using the other two 'legs' for comparison, the Florida State Employees pension calculates out to an 8% per year return when a state employee retires after 30 years of service, my personal retirement accounts, which are mostly mutual funds, have averaged 12% per year even after losing over 40% the past two years. Using the lower figure, if the amount stolen from my paycheck since I was 15 had been put into a pension account earning 8% per year for 50 years, the payout would be about 12K a month. That's 7 years less than the age 72 when the SSA wants me to wait until, and a little more than the SSA has said I can expect in 27 years - which is 0! Oh, look at that. It pays out the same as a Ponzi scheme to the later investors!

  • Report this Comment On July 21, 2009, at 5:28 PM, myrak2009 wrote:

    We need to put all elected officials into Social Security and do away with state and federal pensions for people who do not do their work in a timely manner.

  • Report this Comment On July 21, 2009, at 5:29 PM, BMFPitt wrote:

    Fixing the SS deficit requires at least 2 generatiosn to be completely screwed over. No politician will keep his job if he chooses to screw over any generation capable of voting, so we'll keep pushing it off until we can't push it any more.

  • Report this Comment On July 21, 2009, at 5:29 PM, zgriner wrote:

    Just because SSA calls itself a "transfer payment", that's nothing more than a fancy way of saying "Ponzi scheme". Every thing you have written points to the overriding fact that a Ponzi scheme depends completely on new suckers to pay for the current suckers.

    Remember the big deal that was made how there is only 3 or 4 workers to each retiree, whereas there were 15 or more at the beginning of SSA. That's a Ponzi scheme. Just because the government can steal more money from us does not make it right.

    SSA does advertise unrealistic returns. It tells us that we will get much more money than we ever put in, at least that's what the older folks got. Us pups will end up losing money.


  • Report this Comment On July 21, 2009, at 5:33 PM, unclefrankie wrote:

    SS was never a retirement program, it was a "safety net" to prevent old people from starving to death on the street of "America". It was in the 60's that politicians found they could garner votes by implying that it was a retirement program. What they didn't do then and now is to not spend the excess money that was collected for SS into anything productive which could have had a return on the money. Instead the "blind" population allowed them to channel the excess into the general "I'll take care of me" fund", for when I'm out of office, or during if I can get away with it.

    When established a "Man's word was his bond" it's now "a Man's word is his words" (substitute Woman's) if required.

  • Report this Comment On July 21, 2009, at 5:33 PM, realmcswane wrote:

    Oh, OK. It's NOT a Ponzi scheme because its MANDATORY. Yeah, that's it.

    Oh, and yeah, it's not a Ponzi because it admits it is a loser. That makes it something else?

    Chuck, you must be an attorney to make an argument like this. Give me a break.

  • Report this Comment On July 21, 2009, at 5:36 PM, Lot7 wrote:

    The so-called trust fund does not exist except on paper. There is no pile of cash, only an IOU's from the government. The trust fund would be analogous to putting money into an account dedicated to retirement, and then loaning the "retirement" money to yourself to spend. Your net worth could be negative, yet your your account dedicated for retirement could have a high value based on the loans made to you, a person with negative net worth.

    Note the hypothetical retirement account is not a retirement account in a tax and legal sense in which such transfers would be restricted. But you could have a vacation account in which all the money has been spent and an paper entry account "for retirement" holding assets consisting of loans to the to the empty vacation account.

    SS has been great to people now collecting it, they are getting far more than was every paid on their behalf. They are being paid by current contributors.

  • Report this Comment On July 21, 2009, at 5:41 PM, jerseyrattler wrote:

    Looks like the Fools have finally discovered they have a tremendous grasp of the obvious.

    People have known this for years, where do you think Madoff & others got the blueprint for their schemes ? The Fools are a little slow in figuring this one out.

  • Report this Comment On July 21, 2009, at 5:53 PM, eldetorre wrote:

    I am amazed at the uninformed comments posted on this board.

    Soc security if it had been left alone, and not had it's core purpose expanded would have done fine. All politicians are to blame for raiding its reserves and expanding its mission.

    The fix for SS is 1) To return all the funds diverted from it.

    2) Limit payout to contribution +fixed rate of return.

    3)Limit scope of program.

    4)Offer option to opt out but only if you sign an annual waiver foregoing any public assistance. To opt back in you would have to pay all previous yearly contributions due minus net tax benefit.

    5)Increase income ceiling for contribution.

  • Report this Comment On July 21, 2009, at 6:01 PM, sachinmhaskar wrote:

    Social Security was established as an insurance fund for old people, widows/orphans and disabled folks - those who are unable able to support themselves. Somewhere along the way, the insurance became an entitlement. It doesn't matter if you can't support yourself, you get the money anyway.

    One solution not proposed is to take away the entitlement status and make it needs based. Just like you make an auto insurance claim when you get into an accident and you can't pay for repairs, you make a Social Security claim when you retire and you can't pay your living expenses. Federal Tax returns can help estimate how much you can claim against Social Security.

    Sure, you've paid into the system and it is possible that you won't get any of it back, but how is it different than auto insurance? I'm forced to buy auto insurance, but if I manage to stay accident free (knock wood), I'm never going to see the money.

  • Report this Comment On July 21, 2009, at 6:14 PM, opedbyme wrote:

    I look at SS as an annuity put in and you (and your significant other)| take out till death you do part from this world. I like the system I( glad we got it) but for sure you need the other 2 legs of this 3 legged otherwise the stool won't hold up. If on is lucky you may have a little pension money coming in from the few jobs thru in your career that provided one. If you’re luck you also tucked a little away in personal savings and IRA/Roth accounts otherwise you going to finish off the rest of your existence at the poverty pain no gain. I'm willing to try tweaking the present system to make it better and last longer and pay better. For suggestions: I think the money going into SS should be pooled and conservatively invested (and guaranteed by the Government)...sort of the same way pension funds are conservatively invested to guarantee their constituents an annuity. Nice job Chuck. Enjoy reading your artilce and some (not all) of the many comments.

  • Report this Comment On July 21, 2009, at 6:17 PM, CCook123 wrote:

    Chuck, you mention "Taxes for retirement benefits now run at 10.8% of your first $107,000 of income." How did you figure the 10.8%? OASDI + Medicare is 7.65% for an employee, 15.3% for self-employed (up to $106,800.) OASDI is 6.2%, 12.4% respectively.

  • Report this Comment On July 21, 2009, at 6:17 PM, jerseyrattler wrote:

    Everyone take a good look at how the government has raped & pillaged the SS system.

    Next Up: Health Care

    We're Doomed

  • Report this Comment On July 21, 2009, at 6:33 PM, diversityforme wrote:

    If my wife and I could opt out of SS we would.

  • Report this Comment On July 21, 2009, at 6:37 PM, bliebler wrote:

    I consider it worse that a traditional Ponzi scheme because it is mandatory. I think Bernie Madoff and his ilk should be in jail, but I think all living Presidents should also go to jail for continuing to perpetrate this on the citizens knowing that it is a huge scam. Worse there is no "trust fund" - there are a bunch of IOU's - just like CA is trying to pass off as payment. Bunch of crooks and criminals - steal money from hard working people, put it in a system that provides tiny returns, steal from it to pay for stupid programs, and then make it a sacrosanct political football (or 3rd rail) to ensure it can't be touched.

  • Report this Comment On July 21, 2009, at 6:44 PM, TMFBigFrog wrote:

    Hi CCook123,

    To find the 10.6%, look at this page: , in the row titled "2000 and later", in the column titled "OASI" in the "Tax Rates for Self-Employed Persons" section. The OASI taxes are the retirement portion of the tax. The DI taxes (the other 1.8% to get you to the 12.4% you used fund the disability portion of SS.

    The "$107,000" number is just a rounding to the nearest thousand of the $106,800 figure you have.



  • Report this Comment On July 21, 2009, at 6:45 PM, 123spot wrote:

    TMFCop- Don't forget, the young will someday be old too, if all goes well.

  • Report this Comment On July 21, 2009, at 6:51 PM, dc46and2 wrote:

    I think SS was broke from the beginning because the philosophy which recommends such a scheme is bankrupt. Once that philosophy had taken hold in our political system the expansion/raiding was inevitable. Although the politicians are the proximate cause, the blame must ultimately fall on the voters.

    If SS could truly be "fixed," then there would be no need for it to be a mandatory government program. If people desired such a system and if it were, in fact, financially plausible, then similar systems would have already been created in the private realm that would have attracted many voluntary participants. The fact that SS could only be created by government force is evidence of its inherent flaws.

  • Report this Comment On July 21, 2009, at 7:26 PM, bjbutler777 wrote:

    Call it what you will, however, anyone out there who doesn't agree with Social Secuity is free not to take a dime from it. Any takers? I didn't think so...

    Social security taxes should come out of ALL income, not just the first $107K. Then watch the republicans scream bloody murder.

    With the social impact of Wal-Mart, regardless of their dividends, I would not and do not invest a dime with them.

  • Report this Comment On July 21, 2009, at 7:37 PM, njashmore wrote:

    In my experience, the social security system is a tax and a progressive tax at that. My husband died at 51 in 2002 and his contributions with employer's amounted to $187k per his ssn annual statement. As of now NO ONE in our family will ever get a dime of that money. were only married to each other for 33 years and I have my own work history. Our children are grown 37 and 38 now and productive members of society with their own work history. Therefore, Social Security is a tax and only a tax. Plus I am sick to death of all the blame placed upon baby boomers like we are a bunch of leaches, you know the govt is counting on many more like him to die and leave no survivors who could claim it. In fact the statistic from GAO is about 28%.

  • Report this Comment On July 21, 2009, at 8:01 PM, intpj wrote:


    4)Offer option to opt out but only if you sign an annual waiver foregoing any public assistance. To opt back in you would have to pay all previous yearly contributions due minus net tax benefit.

    eldetorre, if ever there was such an option, people would get out in drove!

    It is only the point of a gun (aka government's use of force) that keeps unsustainable going until it finally colapses.

  • Report this Comment On July 21, 2009, at 8:18 PM, 3rdcitizen wrote:

    I'll keep this short.

    If a person paid the maximum into the social security fund, beginning with its inception in 1932 until they retired in 1980, they received in full every dime they ever paid into this ponzi scheme, in less than 2 1/2 years. Paying a pittance compared to those of us who are paying now.

    MY pension plan is no better. At the present time, we are paying into it at a rate that is equal to the entire amount its founders paid for the entire year in less than two weeks.

  • Report this Comment On July 21, 2009, at 8:44 PM, richsue3 wrote:

    The government is attempting to increase the number of workers that will pay into the SS by adding illegals. Only problem with this idea is many of them are old enough to retire shortly and have many children and wives who will be collecting benefits within years of joining up. The only real solution although an unfavorable one to most people is to raise the cap. Allowing our younger taxpayers to invest part of their money into some type of growth fund within the SS would allow them to increase their benefits in the future without harming the minority of us elders.

    Not allowing congressional folks to eat at these funds and only return 2% might also help. I can get 4% in CD's most of the time. Why can't the government??

  • Report this Comment On July 21, 2009, at 8:52 PM, brwn8484 wrote:

    Actually ... Bernie Madoff only returned 12% per year on average, a very reasonable and not very extravagant return....

    Therefore, by your definition, Bernie never Madoff with any illegal Ponzi winnings and we can all rest assured that the same results will occur with Social (In)Security.

  • Report this Comment On July 21, 2009, at 8:56 PM, Vesta108 wrote:

    what do you mean njashmore when you say you will never get a dime from his Soc Sec? I see on my annual statements that a spouse can qualify for benefits after the age of 60. Is there a catch?

  • Report this Comment On July 21, 2009, at 9:04 PM, TipTopTommyT wrote:

    bjbutler777 - you offered no objective insights to justify the merits of Social Security....just hostility and political haranging. Let's stay on topic....discussing the pro's and con's of SS.

  • Report this Comment On July 21, 2009, at 9:04 PM, agblat wrote:

    Try as thy might, the likes of Wall Street and its financial press have been unable stampede public opinion into going along with rewriting Social Security legislation to make themselves (the Street) the recipients of forced contributions into a privately managed system of retirement. After all, the very existence of privately managed retirement systems has spawned the likes of junk-bond corporate raiders of the '80's, institutionally managed retirement funds pumped into the dotcom Ponzi schemes of FSB's, and the creation of an indentured class through credit market manipulation and inevitable deficiency judgments or real estate defaults.

    Following the unregulated plunder of all the other means and methods of banking for retirement, Social Security may wind up being the only money anyone can count on in the golden years of a free market society.

  • Report this Comment On July 21, 2009, at 9:12 PM, standridge wrote:

    I'm not sure illegals will be able to draw from the fund.

    Why not have a reputable team of investors put the money in the market and then everyone would benefit greatly.

  • Report this Comment On July 21, 2009, at 9:45 PM, gilligan2 wrote:

    Politicians run the system, but they have no stake in the system. They have their own pension plan for when they leave office, and they are not limitted by the system. Now the politicians will start a health care plan for the people and they will not have to rely on it for their plan. Do you think it will be any better?

    The politicians pension should be limitted to the amount they would receive if they were in the social security system, and the same goes for any health plan voted on.

  • Report this Comment On July 21, 2009, at 9:45 PM, topcatdragon wrote:

    If it weren't so terrible I would find it hilarious that (when it comes to SS) the I and U in I.O.U. represents the same entity. The government is us, so it's silly to say the government keeps putting I.O.U.s in this mythical Social Security box. We owe us that money - hilarious.

    It's definitely a Ponzi scheme. Disingenuous, at best, and sinister/dishonest, at worst, from the start. And only getting worse.

    There is a way to fix this by voting properly, but nobody really seems to care or want to CHANGE it.

  • Report this Comment On July 21, 2009, at 10:12 PM, adamsmithstwin wrote:

    Wow, took the Fool long enough to write about this. It's sad this is not common knowledge for everyone in the country by now.

    I see posters making references to actual money in the SS system. Topcatdragon already made mention and maybe others, but there is NO MONEY!

    SS is just another piece of the general fund, and it's spent every year, if you can actual believe in the ability to count debt as an asset to be "spent".

    I had a great reference once on how they do accounting for the SS fund, can't find it now. Suffice it to say, SS is a giant ponzi scheme. Sucks that the system is mandatory, you can just try to not pay into it anymore than you have to.

    Since I was a teenager I thought it was a joke. How can anyone live off 1,000 a month with any standard of living?

  • Report this Comment On July 21, 2009, at 10:15 PM, adamsmithstwin wrote:

    Also, assuming you live long enough to collect.

    In case people don't know, if you die too early you get NOTHING. Why do you think when it started the retirement age was so high. They hope, and in fact bet, people die before they can collect.

  • Report this Comment On July 21, 2009, at 10:45 PM, foobarista wrote:

    Since there's nothing of actual external value in the "trust fund", SS will be "broke" once it can't pay existing people out of FICA payments and starts needing to rely on additional taxes from the general fund.

    The T-bonds in the "trust fund" are simply a legislative device that allows SS to draw from general taxes without needing a difficult vote in Congress.

    The T-bonds have no value other than as a claim on future tax revenue.

  • Report this Comment On July 22, 2009, at 2:07 AM, dgmennie wrote:

    Hey! At last The Fool picks a topic of real interest and the comments are pouring in.

    My two cents is that nobody posting here has even a fragmentary knowledge of the financial numbers behind Social Security. I just started collecting recently, having worked various full-time jobs since 1965. I am in reasonably good health, so I could get checks for decades. But consider this:

    Due to an unusual effort by one member of my high school class, I know that out of about 300 graduates some 40 persons are already dead (none of us are older than 67 at this point). Probably most of the deceased paid into Social Security, yet passed on before they could collect much of anything. I would bet that this rough statistic holds throughout the greater population of (mostly) suburban middle-class folks across the USA. Of course the money from those who expired early will go to survivors.

    The other factor only touched on by a couple of the observant posters is that only SOME wage income has ever been subject to Social Security witholding. Yes, this number has gone up over the years, but today those with six-figure incomes at or over $200,000 are escaping big time due to inflation and the fact that many of them get big chunks of "other" compensation such as fringe benefits, stock options, and investment income. Meanwhile, those who DO NOT get six-figure salaries live paycheck to paycheck and pay the full nut.

    It would seem to me that Social Security could avoid most of the predicted future problems if more ordinary income from high earners was included and a more just and equitable "sliding scale" of benefits was adopted so that retirement could be phased in rather than remain an all-or-nothing proposition.

    What cannot happen is for some stupid politicall-motivated strategy (eg, privatization of Social Security) to be adopted, especially in light of the current economic disaster. Furthermore, employers are going to have to IMMEDIATELY adopt a different mindset about older workers. What is REALLY unsustainable in our present system are professional and technical careers that end involuntarily when employees hit age 50 because they are deemed "overqualified" for the available jobs.

  • Report this Comment On July 22, 2009, at 3:08 AM, pragmatic1 wrote:

    some very interesting things have been said in these comments. No one has mentioned the fact that an immigrant can enter this country at retirement age, never pay in a dime and apply and collect over $600 a month in benefits, if they are from certain countries. Also the fact remains that if SS was not mandatory there are some who would not save anything for their old age. They would have to go on public assistance and the rest of us would be paying for them.

  • Report this Comment On July 22, 2009, at 4:31 AM, johndog19 wrote:

    I will take the side I think I understand.

    - SS is a program with goals and tax-based funding (whether you call them "transfer payments" or not). There are many such programs.

    - Social Security targets its financing policy at behaviors it wants to reward as part of the program: working and earning money. It does not attempt to repay each in kind for his or her contributions. This does not make it a Ponzi scheme, it makes it a program attempting to fund itself, to encourage people to work, and to anchor our society in secure futures for every working individual, Come What May.

    - Why the sense of fatalism? SS will remain solvent one way or another. As others have mentioned, it has scalable parameters: tax rate, income cap, retirement age, amount of benefits. Any of these can be theoretically adjusted to accommodate the changing relationship between retirees and workers, and in so doing it can still achieve its goals. Which, again, do not include providing everyone with guaranteed rewards that are commensurate with contributions. Much ado is made of the program's belly-up horizon because people generally do not want to relent on any of these parameters. But they will. These parameters make the system indefinitely sustainable. Ponzi schemes are not sustainable, as the article points out.

    - SS is not a retirement plan. You can talk about replacing it with an actual retirement system, but in doing so you must recognize that the benefits that actually yield "social security" might go away with such a plan. Sure, your SS payments *might* have grown to 10x your contributions by the time you retire if they had been invested properly in equities. But what if you had lost two arms and a leg after 10 working years? Sure, you *might* have been paying for a substantial AD&D policy during the same period of time and be well taken care of in that event (be sure and add your insurance premium to your social security "principal" when comparing alternatives). But in either case, what if you hadn't, who would be paying for your situation then? Note: This is a rhetorical question--there are many valid answers. But you need to give at least one of them when you're proposing an alternative to S.S.

    - It does sound like SS has been warped over the years by congressional mis-action. Despite this, the only fair way to look at SS remains this: a tax. A tax that supports a government program, a program that at its heart is intended to support the well-being of a self-protected society, a society which is deeply dissatisfied by a worst case scenario which has actually emerged in a time when we had no such program or underlying principles.

    SS may be exceedingly inefficient, but I have yet to see an alternative proposal that doesn't imply sweeping changes to the underlying principles, and I have also yet to see anyone engage those principles directly.

    Questions I want answered: What kind of society do you want to live in? Can you convince the rest of us to want to live in it, too? Finally, how will we get there with your alternative to Social Security?

  • Report this Comment On July 22, 2009, at 7:59 AM, greyhound44 wrote:

    I don't know if the CBO has crunched the numbers, but I suspect that including all workers (especially government employees) in SS would not only make the system more viable, but would help the state and local governments with their outrageous retirement liabilities.

    I began my SS "contributions" in 1960 at age 16; paid at the maximum level for 35 years; retired in 2003 at age 58.75 and began receiving (max reduced for age) benefits at 62. MC benefits begin this year.

    I also saved every tax advantaged $ in PPS; IRA; 401K, and chose my parents well.

    retired expat

  • Report this Comment On July 22, 2009, at 8:56 AM, nimdee2k wrote:

    People, if you don't like the US Gov't, I think there are other countries out there. You can leave. Nobody is stopping you from leaving. Majority 3rd world countries have none of these programs we complained about in this country. All these programs did have good intentions. If some people have gone out of their way to make the programs look bad, we owe to Mother USA to work together and make this country great. We need to work together and come up with solutions and not to bash out government so much. We can disagree with them and then help them come up with solutions.

    This country belong to all of us. Let us help heal the country from corrupted people like Stanford and Madoff.

  • Report this Comment On July 22, 2009, at 9:30 AM, albanaco wrote:

    Whether or not it's a good idea, regardless of whether or not it's mandatory, Social Security does not meet the basic definition of a Ponzi scheme. If simply being a "transfer system" was sufficient, then *any* government program...the military, schools, police, fire...would qualify, since they all involve taking money from some people and giving it to other people.

    A Ponzi scheme fails as an investment strategy since no wealth is created within an inherently closed pool of "investors"...on the other hand, if I buy stock in (the new) GM, wouldn't I (theoretically) have to wait some period of time for new wealth to be created from that investment to see positive returns?

    Social Security, as others have pointed out, was never meant to be an "investment strategy"...the intent of the program was to keep senior citizens, with limited ability to provide for themselves, out of abject poverty. At the time Social Security was enacted, 65 years was actually quite aged, probably more comparable to being 75 or 80 years old today, but many old folks were virtually out on the streets.

    The problem is that Social Security has been misunderstood to be some sort of government annuity and not simply part of the social safety net. As it is, the program could be fixed immediately by a combination of raising the retirement age and maybe applying a more realistic means test...whether or not that is politically feasible at this time is a different question.

    The key idea either way is that Social Security cannot be either solvent or insolvent inherently, despite the baby shell games politicians play, since it is a "pay as you go" system. The political question is to come up with a fair funding mechanism that is revenue-neutral with respect to the distribution policy. (If only such an approach could be taken for other programs...suppose defense appropriations were funded from a mandatory 25% paycheck deduction....)

  • Report this Comment On July 22, 2009, at 10:51 AM, PoundMutt wrote:

    ...And people only pay social security on $107,000, even if they make $500,000....

    ALL income ABOVE 107Gs should be taxed at a high enough rate to securely fund SS.

  • Report this Comment On July 22, 2009, at 11:13 AM, okiejere wrote:

    A 2037 deadline. No problem. All we need to do is make the Congress, both houses give up their retirement and go on social security. Problem would disappear forth with. Simple right?

  • Report this Comment On July 22, 2009, at 11:55 AM, Biergeliebter wrote:

    There are many good points in these comments, and eldetorre and others have some good ideas that might actually fix the problem, but my question is why fix it?

    For those who have said that we need this program, think about this: I am 41 years old and have been paying into the system since I was 15. I have an average salary (Average american household earns $40K a year) so it is hard to pay bills and have money left over for a retirement account, but we make sure we do because we know SS (social security has always reminded me of the Gestapo, so the SS seem fitting) will likely not be there for us when we would need it.

    The current amount drawn from my paycheck for SS is a little under $250 a month.

    On every SS statement I've received the past few years where it estimates my payouts, my estimated payout at age 62 is $512 a month, more than my estimated payout at age 72 ($479), because they don't expect to be able to fund the full amount of $1034, and it even says the amount I collect may be $0.

    Now, if they had an 'opt out program' or something where you still had money taken from your paycheck but were given an investment option, I would be more than happy to let them keep the last 26 years of payments into the program to have the ability to take my $250 a month for the next 24 years and do something productive with it.

    $250 a month for 24 years with an average rate of return of 12% would grow to $414,031, which I could then draw interest of that amount at about $4,000 a month. That sure beats the $1,034 SS which is the full amount I would get at age 72 if they could still pay it by then. And if I kept investing the $250 a month until I was 72, the age I am eligible for full SS, that amount goes to $987,724 which would return monthly interest of $9,877.24.

    With figures like these, wouldn't it make sense to wean us off a program going no where?

    Another example of how 'wonderful' SS is - with the new medicare plan, my dad's SS payments almost cover his prescriptions. So much for his 50+ years of payments into the system.

    For those of you that say its just another tax, you seem to have forgotten that it comes out of your paycheck based on your earnings, not taking into account any deductions you may have claimed, and it is not affected by your annual tax returns. I wouldn't mind it so much if it were 'just another entitlement program' because with an income of $44K and a wife, 3 kids, and 2 mortgages, I get a few deductions on my tax return.

    Here in Florida we state employees can choose between the regular pension and a retirement investment plan. The retirement investment plan is where the state puts the money they would have paid to the pension plan on your behalf into an investment fund that you can steer. Because SS follows us from job to job, a similar investment fund would make more sense than a pension fund. But this would still cover people that don't know how to save, but at a monthly payment that would actually cover some meaningful expenses, not just prescriptions.

    Why the government would never go for a plan that would provide an actual return: By keeping people poor, the government maintains its power over them. Now that we have WIC and food stamps and medicaid and all the other 'assistance' programs, we low income earners that qualify for such programs think twice when we vote for someone that ACTUALLY wants to change things in government, or when we are about to apply for that job that would be enough of a raise that we or our kids would no longer qualify for some of them. While an investment plan of this type would definitely reward people for working longer, it would also eventually pay enough that many people would not need the other programs in their retirement years, thereby giving them a little more freedom from government. And that is something 'they' don't want us to have.

  • Report this Comment On July 22, 2009, at 12:44 PM, sapereaude1 wrote:

    Present-day metropolitan corporate capitalism is the real Ponzi scheme in America. It gets the working middle class to dedicate its lifetime of labor and meager savings to perpetuating a free ride for the handful of corporate centimillionaires who control the government. It does this by promising them that they are the luckiest people in the world. Not even the barons of medieval Europe tried to con their serfs with such nonsense--they were at least honest enough to tell their serfs to serve or die.

    Baurenkrieg kommt zunächst, if we don't change our corrupt financial system.

  • Report this Comment On July 22, 2009, at 1:13 PM, farmnut1985 wrote:

    Privatize SS, best solution, if done there needs to be some eventual payback based on years paid in, but to do this the government would have to tax us to pay us back. Confused yet? Best they can do is allow people to opt out and cut the budget so tax dollars go do what we the people perceive them to be spent on. I am partially self employed and it makes me sick just to see how much of a $20,000 gross income has to be paid into SS from that. And to the person who said we here at the fool are slow for just figuring this out, most of us have known this for years, but what can we do other than vote?

  • Report this Comment On July 22, 2009, at 4:01 PM, ReadEmAnWeep wrote:

    Yes, definitely a scam!

  • Report this Comment On July 22, 2009, at 5:13 PM, njashmore wrote:

    REPLY TO Vesta108 wrote: what do you mean njashmore when you say you will never get a dime from his Soc Sec? I see on my annual statements that a spouse can qualify for benefits after the age of 60. Is there a catch?

    YES, YOU CANNOT MAKE MORE THAN 14K AND SOME CHANGE until the spouse's ret age but since we are the same age..... sol. SSN reduces the benefit for every dollar you make. Therefore, what the SS agent told me when I went in after my husband died, no I'll never claim on his mine will be more in wages since i'll be working longer than he. was absolutely true... it is a tax and has always been a tax or you could also look at is as a simple redistribution of wealth.

  • Report this Comment On July 22, 2009, at 5:38 PM, pedorrero wrote:

    If you think you can trust the U.S. government, ask an American Indian about his history. And USA is one of the better ones in the world. And for those of you who suffer from denial to one degree or another, and that's most of us, a favorite saying of mine is: "You can bury your head in the sand, but you will still drown when the tide comes in."

  • Report this Comment On July 22, 2009, at 7:32 PM, PALH wrote:

    About what I expected from the commenters here. A completely cogent article explaining social Security met by a mountain of right-wing hogwash (and some occasional intelligent discussion, e.g. albanaco, dgmennie) that completely ignores the overwhelming success of Social Security. Still boosting privatization, after a stock market meltdown that would have savaged anyone's ``private'' retirement accounts. Unbelievable.

  • Report this Comment On July 22, 2009, at 10:20 PM, dquihote wrote:

    It's my money. Let me keep it, let me invest it or spend it as I see fit. If I make poor decisions it is my loss. I can live and die with my own decisions. I have no choice but to live and die by the politicians decisions.

    The government has no obligation to babysit me. The government has no constitutional grounds to confiscate the income of it's people for social equality. SS should never have started, but it "had to be done" for "the good of the country". Doesn't that sound familiar? How many things in the past year "had to be done" for the "good of the country"?

  • Report this Comment On July 22, 2009, at 11:52 PM, kamuirei wrote:

    As the 24 year old in the room... I of course vote for an opt-out option.

  • Report this Comment On July 23, 2009, at 4:29 AM, Royzo wrote:

    It's hard to believe there could be such a huge contingent of half-wits weighing in all at once. If you feel so opposed to SS, there are plenty of countries without it. Especially since you're so self sufficient, I'd suggest Zimbabwe. Mugabe could use more bootlickers. You'd have made proud members of the 3rd Reich, too.

  • Report this Comment On July 23, 2009, at 8:09 AM, brwn8484 wrote:

    To all of you who think SS is such a great deal.... Lets compromise.... Since we live in the greatest "FREE" countty on earth. All those for SS can continue to pay into the greatest Ponzi scheme ever devised and the rest of us will work for our pay.

    Seems fair to me and allows those of us who are wise enough too see the coming collapse to exit now. And... since its such a great program, you can pay only the deposits back to those who want out. Since it's such a "great" program and obviously not a Ponzi scheme, there should be plenty of money to pay back only the deposits to those of us who want out. Besides, since its such a great program, (not a Ponzi) only a few of us will want to opt out.... right! (Congress should not care either since they have been handling "OUR MONEY" with fiduciary responsibilty)!

    Thats what I thought.... I can see the comments now... anger and criticism and derision about how my idea (even though it is fair) and based on sound wisdom will destroy the SS fiasco.

    They have ommitted critical thinking skills in most education programs because it does not make sense to teach the masses to make honest and fair judgements in a society that is bent on destruction of wealth and destruction of the middle class. Wake up America! We are at the brink, the precipice of a social and political and financial crisis. We must think logically, critically and make decisions that will save our children. As it stands we should all stand trial for child abuse..... As we are creating the greatest financial burden our children will ever see and we are placing the load directly on our childrens backs.....which will soon break from the sheer weight of greed and evil.

  • Report this Comment On July 23, 2009, at 11:01 AM, mooonguy wrote:

    The core characteristic of a Ponzi scheme is the underlying mathematics.

    Money comes in in a linear fashion and goes out in an exponential fashion without any fundamental growth. Hence is inevtiably doomed. The early in will make out well. Then some will break even. Then the rest are loosers. Exactly what we are seeing with SS

    The writer notes the following about SS

    - It is mandatory

    - Taxes can be increased

    - It doesn't offer outrages returns

    - It is transparent

    Not a single one of these facts counters the underlying flawed mathematics. So it's still a Ponzi scheme.

    It is a very fascinating thing. It is transparent (at least compared to a normal Ponzi scheme) but people's willingness to delude themselve and ignore the facts (because the consequences are in the futre) overrides what is clear, obvious, and inevitable.

  • Report this Comment On July 23, 2009, at 2:04 PM, mikecart1 wrote:

    They should make social security voluntary. This country is BS how we pay so much for things so many of us may never even get to use. Many people don't live old enough to get social security and even if you do, the lousy check you get has you living the hard knock life.

    Just thinking how much money I will have given away to social security in my lifetime makes me furious.

  • Report this Comment On July 23, 2009, at 2:28 PM, farmnut1985 wrote:

    Palh, Royzo,

    You are missing the points of the arguments. We do live in a great country with freedoms like no other, but for how long. SS seemed like a good idea when it was started but it was poorly managed. Government programs, unfortunately, unlike most businesses, when they are poorly managed don't fall apart and fail. In gov't they just throw more money at the problem rather than fix the problem!! Same goes for the bailouts, cap and trade, and healthcare reform, all come with some good ideas that could be used, but they are extremely flawed and still don't fix the problem.

    SS is insolvent and therefore a ponzi scheme. Make it optional, would be really nice right now for the fact that I could be dropping all of my SS taxes into a ROTH and buying good fair priced stocks.

    We have the intelligence to fix this problem, it is just if the people we elected will listen and do it......and do it right. Bit of a rant, but it burns me when people present no solid arguments, just argue.

  • Report this Comment On July 23, 2009, at 3:24 PM, Big50Shooter wrote:

    No big surprise here... SS is WORSE than a Ponzi scheme!!!

    For get about it, let it go... It's going to be broke WAY before 2037... Between that and Medicade, I understand there is about 64 TRILLION dollars worth of entitlements that cannot be sustained... Done! Game over!!!

    What the liberal ranters above keep forgetting is that CONGRESS SPENDS most of the money that comes in which is earmarked for SS already in the general budget (thanks to the Democratic Congress in history!)!!! There is NO "lockbox" (as Al Gore used to call it) full of $$$! The box is EMPTY! I agree that it should be optional (as it was first intended BTW) and we should be allowed to put our SS deductions into IRA's... At least (no matter WHAT the market does) the money will BE THERE!!!

    Are all of you ready to clear out Congress yet!?! There is an election cycle next year... THAT is where our Revolution will need to start IF we want to retain any hope of taking this country back!!!

    D.R.I.P. Don't Reelect Incumbent Politicians!!! ANY of them!!!

    Pick a new/3rd party if at all possible... Libertarians, Independents, whatever...

    NOW is the time for all good men (& women) to come to the aid of their country!!!

  • Report this Comment On July 23, 2009, at 5:02 PM, Royzer wrote:

    "That figure now sits at 10.6% of your first $106,800 of income."

    I thought the 2009 rates were 6.2% FICA and .145% Medicare on the first $106,800 of income.

    What am I missing?

  • Report this Comment On July 23, 2009, at 5:41 PM, georcole wrote:

    standridge- The idea of having an all star team of investors manage a large amount of money was tried and failed miserably

  • Report this Comment On July 23, 2009, at 8:42 PM, TMFBigFrog wrote:

    Hi Royzer,

    You're only looking at the half of the tax that comes directly out of your paycheck. The other half comes from your employer, on your behalf. Don't be fooled, it all comes out of the "employee compensation" bucket (meaning money your employer is paying to keep you around), and thus it ultimately affects what you're able to take home from your work.

    Also, the Social Security tax includes a measure of taxes to pay for disability benefits along with the retirement benefits. The 10.6% is the employer + employee part of the tax that pays for the retirement part.

    Hope this helps,


  • Report this Comment On July 23, 2009, at 11:01 PM, PeterC001 wrote:

    I gotta side with the doom and gloom folks here. Attached is a link regarding the solvency of social security. While the stuff may not hit the fan for a couple decades, what everyone should know, is that the SS fund has been consistently raided over the years. Per the article, $2.4 TRILLION ($1.2 in loans and $1.2 in interest) are currently in form of IOUs to the treasury department! I have no faith that that will be repaid in my lifetime. How will the government fund it? Print more money? More treasury auctions? Raise taxes? Ponzi scheme or not, the system is broke, in dire straits, and needs immediate action to correct or we'll be paying for generations.

  • Report this Comment On July 23, 2009, at 11:48 PM, VegasMartin wrote:

    Of course it is. They rely on new "investors" to pay off older "investors." It's a ponzi scheme by its definition!

  • Report this Comment On July 24, 2009, at 9:23 AM, brwn8484 wrote:

    This Blog reminds me of the story of the Emperor and his supposedly new wardrobe. Telling yourself that this is not a Ponzi scheme may make you feel better about giving money to the Govt, but it can never change the ugly truth that we have been swindled by a govt and leaders who have lied and plundered the money that was supposedly being handled with fiduciary responsibility. Anyone other than the govt would be held accountable, immediately. Unfortunately, we have enabled our leaders thievery by continuing to fund this black hole of a slush fund. You may continue to debate the ethics or honesty of a system that takes from the rich and gives to the poor, but in my book any form of money collection that is mandatory and enforced by govt regulations is definitely not in the best interest of those who are currently funding it. As an American citizen, I am appalled by the number of people who support the current SS system solely because they are afraid that they will lose their benefits. I suspect that most of the proponents who have ridiculed the naysayers here are from that camp of individuals who feel they will lose out in the short term if the system is

  • Report this Comment On July 24, 2009, at 1:34 PM, CarrieMike wrote:

    Whatever happened to the "lock box" of monies supposed to be dedicated to Social Security? It was not meant to go into the general fund to support all the waste and crazy govt. programs. It was to be set aside and invested. Why isn't anyone acknowledging that and why isn't there a movement to dedicate the SS taxes to SS and disallow the current practice of spending it on whatever...?

  • Report this Comment On July 24, 2009, at 2:53 PM, multi007 wrote:

    What I dont understand is that with all of the political ranglings on what to do with SS, especially with Bush -vs Gore in 2000 elections, Gore wanted SS to be put into a "lock box", and Bush stated "lets have people invest their money how they want". But yet none of them made any changes. Its still the status quo.

  • Report this Comment On July 24, 2009, at 2:57 PM, lcpowell wrote:

    So now Motley Fool is willfully dragging itself into a wanker's circus ring with the likes of a shameless clown like Jim Cramer? I suppose his kind of spittle-spewing audience is the crowd you're stooping to attract to your sad little stock-pimping syndicate. As for Social Security, I have way more confidence in its solvency come 2037, than in the sorry lot of shills managing my crapfest 401K plan.

  • Report this Comment On July 24, 2009, at 3:53 PM, Jabotinsky wrote:

    Social Security IS worse than a ponzi scheme. We have a choice of getting in and out of Ponzi scheme.

    Givernment is forcing us to participate Socialist Security and they'll tax us to keep it alive.

    Obamunism is looking to expand government control of all industries and areas of our lives, including retirement. Look for higher taxes to pump more cash into Socialist Security.

  • Report this Comment On July 24, 2009, at 4:30 PM, kernel85 wrote:

    Social Security is what it says it is. It is a secure base upon which you can build a better retirement if you're smart and/or lucky. But if worse comes to worse, as it has for millions of elderly people, it can be lived on if you're careful. I know.

  • Report this Comment On July 24, 2009, at 4:33 PM, kernel85 wrote:

    On July 24, 2009, at 1:34 PM, CarrieMike wrote:

    Whatever happened to the "lock box" of monies supposed to be dedicated to Social Security? It was not meant to go into the general fund to support all the waste and crazy govt. programs. It was to be set aside and invested. Why isn't anyone acknowledging that and why isn't there a movement to dedicate the SS taxes to SS and disallow the current practice of spending it on whatever...?

    --- what happened is George Bush got elected somehow instead of Al Gore. What a mistake that was.

  • Report this Comment On July 24, 2009, at 4:44 PM, voiceofreason2 wrote:

    What everyone seems to overlook is that Social Security is a WELFARE program.

    The Social Security tax is a TAX.

    It has nothing to do with INVESTMENT or OWNERSHIP.

    It was called a retirement program to allow proud hard working people to accept it and to justify the most regressive tax imaginable to be levied on these same people.

  • Report this Comment On July 24, 2009, at 6:24 PM, stlmikey wrote:

    Social Security is a social insurance program.

    Social in that it's intended to provide a minimum level of retirement security. It can't be voluntary because those who would use it would likely save on their own as well. Those who don't save would still require some social program (food stamps, welfare) that the rest of us would pay for anyway.

    It is also a transfer of wealth from the more fortunate to the less fortunate. Even though there is a pay limitation on the amount of contributions, the benefits are lower as a percent of contributions the higher your pay. That is, the average worker might get 40% of pay as a benefit while the higher paid worker might get 20 to 25% of the $107,000. The tax consequences at retirement for these benefits are also more onerous if one has otherwise saved - my personal opinion is that this is a mistake.

    It's an insurance program in that people who die before retirement may get nothing if they have no survivors. This keeps the cost lower than otherwise and makes sense since they cannot make much use of the retirement income while dead.

    The program is in trouble for a number of reasons - the most significant is the greater number of people in retirement (relative to workers) and their increased life expectancy. There have been a number of reports suggesting fixes for the system - the two most reasonable being a gradual increase in the retirement age combined with a slightly less generous indexing of the benefits.

    Unfortunately, Congress often does better at creating problems rather than fixing them. But at some point, the problem will be too big to ignore.

  • Report this Comment On July 24, 2009, at 7:40 PM, Jacksschitt wrote:

    Big50Shooter has the right idea. Out with the entrenched incumbents.

    After about ten years in the work force I lamented"keep what I've put in Social Security and let me take that amount and invest it myself". I would be on EASY STREET today. The closest that I have come to that option was from President Bush. By then it was too late for me since the market works best over time. If I were allowed to do that when I was younger this downturn would not have wiped me out but I would probably have to make an adjustment and wait for the next uptick which will happen. Look at the history of the market. In the meantime, I will wait for the next election.

  • Report this Comment On July 25, 2009, at 12:40 AM, bigsxs wrote:

    The big issue is the ways that Social Security pays everyone, It's not just retirees but every dope addict that won't work that gets in on the dole. SS isn't just for the old people that retire; everyone is getting a handout.

  • Report this Comment On July 25, 2009, at 7:35 PM, 1stGradeStudent wrote:

    Just a simple question:

    Can anyone tell me where it is written that our government is REQUIRED BY LAW to make ANY Social Security payment?

    If Social Security benefits are paid out of the general fund then it is unlikely that any legal requirement exists to pay them.

    Of course, the politicians must keep the scam going to get re-elected and, by necessity, roll back the benefits to keep SS from collapse,

  • Report this Comment On July 25, 2009, at 7:57 PM, 1stGradeStudent wrote:

    I 2nd Big50Shooter.

    The Republicans wanted to fix the financial shenanigans since Clinton (who admittedly opposed those changes which later he says he shouldn't have done). The Democrats wanted no part of it because they wanted everybody to own a home. So everybody got a home even if they couldn't afford one.

    Bush wanted to take away our civil liberties.

    One thing led to another and here we are.

    Obama's bailout package alone will cost us 9.3 TRILLION dollars.

    That's THREE stacks of one dollar bills, lying flat, that would go from HERE to the MOON!

    Socialism needs Captalism and free enterprise to fund it. Look around the world and tell me it's not true.

    For those who bash American business and want to steal it blind be forewarned.

    For those who say I can move to a third world country if I don't like it here, I say to them, at the rate were going, this country will be a third world country in short order. So why move?

  • Report this Comment On July 26, 2009, at 10:01 PM, brwn8484 wrote:

    I say based on our unemployment, lack of leadership and a continuing slide into marxist-socialist policy, we are already a third world country.

    The only difference between the US and other third world countries... We havnt completely destroyed the middle class yet, but rest assured our leaders will not rest until they have completely re-distributed the wealth so that we are the "Haves" and the "Have Nots".

  • Report this Comment On July 27, 2009, at 2:27 AM, 11x wrote:

    Yes, Social Security changed it's scope from being a helping hand for the truly poor retired people in this country, to a retirement program for everyone in this country. The problem is, 6.4% of my paycheck now goes to social security. And you're going to raise that to cover deficits? And reduce payouts? How am I supposed to have money left to save for my own retirement if that 6.4% just disappears?

    This is the problem in this country, everybody looks at the government as a provider, not a facilitator for things free enterprise won't do on it's own (build roads, protect borders, etc).

  • Report this Comment On July 27, 2009, at 2:31 AM, 11x wrote:

    The difference between us and a third world country is we generate massive debt to maintain a facade. Not to say we would have it bad as, say, Africa or Southeast Asia, but these government programs we have are unsustainable.

  • Report this Comment On July 27, 2009, at 2:53 AM, mtinspirit wrote:

    Jim Kramer is one of those out-of-touch elitists that has no connection with the common man. His commentary sounds great but has no real meaning. The whole stock market is a Ponzi scheme! You put money into a stock, take it out a little later, and the whole system works (people keep making money) if people keep putting money into it! As soon as people pull out, someone is stuck holding the worthless stock - like musical chairs. The point is this: the whole economic system and every component can be compared to a Ponzi scheme. It's a worthless comparison. Kramer should have been indicted for his market manipulation - including Apple, as admitted on and through the Jon Stewart show. Why do people listen to that moron? Was that rude? Or should we keep in mind that many people killed their portfolios by following his moronic advice?

  • Report this Comment On July 27, 2009, at 9:45 AM, 1stGradeStudent wrote:


    I think too many people view the stock market as a bad thing.

    The stock market should be viewed as an investment opportunity by providing valuable cash to support businesses in their endeavor to expand their ability to produce. This is a good thing.

    The value of a stock should be a reflection of that success providing real value to its investors. This is the essence of Capitalism.

    When stock trading is reduced to a "get rich" scheme both businesses and investors suffer.

    With the advent of sophisticated trading software, the internet, commentaries and emails manipulating investment decisions, and the ability to trade on minute bars in all the markets on the planet, it's easy to see how the basic concept of building a portfolio with real value has become very difficult indeed.

    Add into the mix a government which can not fix anything at great expense only increases the uncertainty of success in the stock market.

  • Report this Comment On July 27, 2009, at 10:10 AM, Siegfrieds wrote:

    The question is, do you want government to save your future or do you want to take some time and effort and improve your own future? I see most of the people who support SS want the government or should I say wellfare system to save them. Fact is, of every dollar taken in by the government 30% is lost or schemed into someone elses pocket. If you truly believe SS can save you, I feel bad for you. It is a bankrupt system. Please take some time and invest in solid companies for your own future. Think about it this way, 1 government 1 fail point or thousands of companies with thousands of fail points. I'd take the percentages and go with the free market and multiple choices. When government fails we all fail.

  • Report this Comment On July 27, 2009, at 4:35 PM, ReadEmAnWeep wrote:


    "Whatever the merits or not of Social Security, it is clearly *not* a Ponzi scheme, at least not by definition. A Ponzi scheme works by recruiting new "investors" who pay up the line to earlier "investors". Eventually you run out of "investors" (and available money), so the scheme falls apart. "

    That is exactly what SS has been, is, and is going to be.

  • Report this Comment On July 27, 2009, at 4:41 PM, Iluvitar wrote:

    Definitely not a Ponzi scheme. Social security has never offered a positive return on your investment!

  • Report this Comment On July 27, 2009, at 8:15 PM, AGORIC wrote:

    It may be mandatory, as the author states, but only for real Americans. Illegals are not required to pay- yet they play the system to recieve benefits. And they play the tax system for bogus refunds.

  • Report this Comment On July 27, 2009, at 11:24 PM, shineNdrive wrote:

    So is the 401k - it is an optional scheme, i agree but the idea is the same - contribute to your 401K, increase market cap of the companies - hope that market cap grows by the time you need to pull out.

    It just started in 1978.

  • Report this Comment On July 27, 2009, at 11:28 PM, shineNdrive wrote:

    So is the 401k - it is an optional scheme, I agree, but the idea is the same - contribute to your 401K, increase market cap of the companies - let those who are pulling out their 401k enjoy the market cap rise - hope that there are enough people contributing to their 401k when you need to pull out. Repeat.

  • Report this Comment On July 28, 2009, at 5:32 AM, PeterBradshaw wrote:

    Foolish Readers Comments would seem to be a largely justified adjective. Very few of the comments show any understanding of the SS system. It is NOT an investment scheme, the current surplus is just a small portion of the money paid in (unlike a 401(k), where all the payments go into an investment), due to changes and imbalances in the demographics over time. Current incoming payments mostly go to current beneficiaries. The lady whose husband died either talked to an incoherent agent, or miss-understood what she was told. The income limits only apply to early retirees, if she starts to collect from her late husbands account after she is 67 or 68, her other earnings are not a factor.

    As to the future problems, a small increase in the payment rate, an increase in the upper income limit, a small reduction in benefits, or increase in the eligibility age, or a combination of these, will easily solve them. A few years ago, the "problem" date was around 2043, the drop to 2037 is probably due to the current recession (caused by the anti-government anti-regulation feelings so widely expressed in the more Foolish Readers comments), and oncew that is over, the problem date will probably increase again, and may even go away.

  • Report this Comment On July 28, 2009, at 2:23 PM, PhillyDan wrote:

    First off, the combined tax rate for social security and medicare is 7.65%.

    Social Security was always intended to be a safety net for the elderly and disabled. It never was intended as a savings program.

    Rates have also risen commensurate with increases in income and inflation as to be expected.

    By raising rates and increasing retirement age over the next 7 years by 1.5% and 3 years (69); and by, adjusting benefit increases indexed to inflation will allow SS to be solvent for an additional 40 to 50 years.

    Over 75% percent of people on SS need it to get by in addition to their retirement savings. For close to 50%, SS is the primary source of retirement income.

    So for the "no solution as usual" comments above. Come up with a reasonable solution that works for "All Americans". We don't need any "Let Capitalism Work Answers" either, that theory has been proven wrong once again.

    Social Security is a good program that provides an essential safety net for the elderly. Let's keep it going. Now, we need Health Care Reform for "All Americans".

  • Report this Comment On July 28, 2009, at 3:29 PM, brwn8484 wrote:

    Geez... This is a Ponzi scheme and no amount of lying or naive hope will change that fact. Just because you want your benefits does not mean that it is fiscally sound or being handled with fiduciary responsibility. Helooooo, Hello, wake up... wake up...

    Oh forget it.... never mind. Just pass a few more socialist spending programs like socialized health care. That should fix everything. And while your at it, just increase the stimulus package so that a few more banks and anyone else that needs a bailout can have some more money. And while your at it.... Lets bail out a few more industries that are supposedly too big too fail..... Can anyone say S-T-U-P-I-D. Thats what we all are for buying this load of horse manure!

  • Report this Comment On July 28, 2009, at 5:17 PM, plange01 wrote:

    for once cramer was almost right social security is just part of the biggest ponzi scheme.the US government itself is the clear cut winner!! bankrupt for years trillions in debt to the point where major countrys like china and russia are worried about their investments in US currency...

  • Report this Comment On July 28, 2009, at 5:42 PM, Fool2beKC wrote:

    Ponzi schemes? Transfer payments?

    How about TARP and TALF and all the other alphabet soup of bailout programs for the so-called lions of capitalism who risked and lost a LOT of private pension money in the last couple of years. Or weren't any of you paying attention? Apparently the regulators weren't - thanks to the attitude that government provides no value and simply takes our taxes and loses them somewhere - but that's another discussion.

    The LOLR (lender of last resort) is the Federal Gov't courtesy of the U.S. taxpayer to provide a safety net for capitalism as a whole.

    So are T-Bills investments to everyone but Social Security participants?

    'Investments' of any kind are simply promises to pay later for cash up front.

    When we (through OUR government or companies or as individuals) make promises, we need to keep them or the wheels come off everywhere - plain and simple.

    I could retire in about 6 years - early - if I could afford it but I'm willing to adjust my expectations for my self and keep working and investing and creating wealth. And I for one am grateful that I DO NOT have to support my wife's aging parents on my own thanks to their government pensions and wise investments. They wouldn't dream of burdening their grandkids, nor I my kids either. But it would be nice if I got something back after paying in for years and years.

  • Report this Comment On July 29, 2009, at 9:04 PM, ynotc wrote:

    In your analysis you are forgeting to mention that the only people that are allowed to opt out are congressmen and a few other local and state governments. If it is so great and not a ponzi scheme then why is it not good for everyone? Strangley it seems that healthcare is going the same way. Only the "elites" will be allowed to opt out. Seems that what is good for the goose is good for the gander is only applied in the private world.

  • Report this Comment On July 29, 2009, at 9:30 PM, ynotc wrote:

    And for those of you who are saying that SS was only intended as a safety net for widows and orphans you should understand that the nature of any governement giveaway is for more people to take advantage of it than was originally concieved. What happened to independance? I am certainly not counting on SS for my retirement but if it is still there you can bet I will take it. That is my money even if they are giving it back with a crappy return.

    Government should quit solving our problems. They started meddling in education and now our schools are worse off then ever so the answer is of course more of that old government cure. With the recent Madoff mess they are proposing more regulation. How about using the current regulation and holding people accountable. If the SEC had actually looked into Madoff, which they had the power to do, we wouldn't even know his name, but when you are int he good old boys network you get a pass. I really wish the government would quit "helping us" and do thier job which is to maintain the defence of our nation and enforce the laws.

  • Report this Comment On July 30, 2009, at 12:04 AM, 1stGradeStudent wrote:

    545 PEOPLE

    By Charlie Reese

    Politicians are the only people in the world who create problems and then campaign against them.

    Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?

    Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?

    You and I don't propose a federal budget. The president does.

    You and I don't have the Constitutional authority to vote on appropriations.. The House of Representatives does.

    You and I don't write the tax code, Congress does.

    You and I don't set fiscal policy, Congress does..

    You and I don't control monetary policy, the Federal Reserve Bank does.

    One hundred senators, 435 congressmen, one president, and nine Supreme Court justices: 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

    I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

    I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don't care if they offer a politician $1 million dollars in cash.

    The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes..

    Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

    What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it..

    The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? Nancy Pelosi. She is also the leader of the majority party.

    She and fellow House members, not the president, can approve any budget they want.. If the president vetoes it, they can pass it over his veto if they agree to.

    It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility. I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

    If the tax code is unfair, it's because they want it unfair.

    If the budget is in the red, it's because they want it in the red .

    If the Army & Marines are in IRAQ, it's because they want them in IRAQ.

    If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way..

    There are no insolvable government problems.

    Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.

    Those 545 people, and they alone, are responsible.

    They, and they alone, have the power.

    They, and they alone, should be held accountable by the people who are their bosses.

    Provided the voters have the gumption to manage their own employees.

    Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.

    What you do with this article now that you have read it.......... is up to you!

    This applies to Social Security as well.

  • Report this Comment On March 29, 2011, at 5:56 PM, LoonyFran wrote:

    SSucker: An American citizen conscript, of the United States Government, who is compelled as a tax slave to 'invest' under penalty of law in the federal Social Security and Medicare Ponzi schemes.

    Such a citizen must gamble in the fraudulent SS-Ponzi and MC-Ponzi schemes (games), or face incarceration in federal prison.

    Any such scheme is normally and usually the results of criminal enterprise; except when administrated by the federal government.

    Both SS-Ponzi and MC-Ponzi shall ultimately collapse and defraud those who ‘invest’ (gamble) in such schemes (games).

    But if a citizen’s religion despises gambling, Uncle Sam ignores Freedom of Religion and uses legal coercion to force participation.

    Read More:

  • Report this Comment On May 02, 2011, at 6:13 PM, LoonyFran wrote:

    Sorry, but it is an inviolate law of the Universe that Ponzi schemes can’t be fixed or made to permanently function. This is similar to the Universes’ guarantee for failure of perpetual motion. Neither Social Security nor Medicare gets a 'free-pass'!

    The non-existence of original mal-intent is a frail excuse for Social Security. The behemoth began life with good intent, but transitioned into fraud over the years. Politicians now secretly realize that Social Security functions 'effectively' a Ponzi scheme, but most are too gutless to tell the American public.

    Read More;

  • Report this Comment On June 06, 2011, at 4:16 PM, tmhshow wrote:

    Just saw this article and all the mis-informed comments. Here's the biggest mis-info many of you have... Social Security was NEVER sold to the public as a social insurance program. Don't you fools who think that's what it is think it's odd that HIGHER earners receive HIGHER benefits? Yeah, that's because it was a self-savings vehicle and still is run as such. Do you even know that the max SS taxed income of around $106k is because that's what the max benefit is based on? THAT is why they never got rid of the SS taxable income limit - it's not a "sharing" program! Regardless of any other income/assets? . Your distributions are comensurate with your earnings over a long period.

    Unfortunately, they started right off making the benefits paid far more than the payments could support OVER TIME. Yeah, when it was one being paid for every 30 paying in the math worked fine, but no demographic study ever showed that would continue. Now we have one to three ratio, soon to be 1-2. Oops....

    Yes, it is a CLASSIC Ponzi scheme. It has been perpetuated due to a huge pool of new "investors" in the ponzi and the ability of the government to make HUGE increases in what current "investors" contribute for their mythical future benefit. However, like all ponzi schemes they don't end when ALL the money runs out, they end when the investors all realize they've been had! Now we know it and the gig is up.

    Sorry Libs, it wasn't part of your loved wealth redistribution philosophy so trying to turn it into that will be met with an iron wall. Thus it will fail.

    It's sad how many Americans can't think for themselves and are forced to drink the coolaid of one political party or another. SS (and Medicare) are mathmatically flawed programs and neither a Repub nor a Dem can change math - though they can try to fool the ignorant I guess.

  • Report this Comment On June 21, 2011, at 1:25 AM, DennyHayes wrote:

    People supporting Social Security as well as this article claims that the difference between a Ponzi Scheme and Social Security is that people were not mislead. This is because in a Ponzi Scheme the investors are told what the money would be used for, and it was used for something else. Another claim is that it can't collapse when there are no more investors. That part is just plain silly, because anyone with a brain knows that if there is no more money going in and there is not enough money existing, the investors can't be paid, unless they borrow it from somewhere or print worthless money, which the government has been doing for a long time. The way Social Security works is that as they run short on money they reduce payments, which has been done in many Ponzi Schemes where people went to jail. But to address the first point, when investors invest into Social Security, they are told that the money will only be used only for payments to them when they get to a certain age, which is about to change. But more important than the age changing, back in the 80s it was decided that there was too much money in the social security wallet, so other branches of the government started borrowing it. Or, like when my daughters ask to borrow money, it is never paid back. The investors in Social Security were not told that the money was to be used for that. One other thing that should be mentioned, is that in a traditional Ponzi Scheme, the investment is used for personal gain, as well as not being used for what it was intended to be used for. Usually they buy fancy cars, airplanes, boats and other toys. Proponents of Social Security sometimes point to that difference. But there have been many shows on the TV's American Greed where the person running the Ponzi Scheme used no money for himself. One recent show was about a religious group that took in investors money, but used none of it for themselves. What really happened was that the FBI got involved and caused the value to drop, and the guys still went to jail. The commentator even mentioned that it was obvious that they did not do it for person gain. Scenarios like that happen often. The FBI announces that they are investigating someone, the stock naturally drops, and the guy goes to jail for causing little old ladies to loose their money. Many of the looses shown on that show are very questionable. They want the public to feel sorry for someone who invested their whole life's savings into a risky situation, which is pure insanity. In my opinion anyone doing something that stupid deserves to loose their money. The bottom line is that our government makes so many laws that they can pick up anyone off the street randomly and give them life in jail. But they typically exempt themselves and big business. I remember reading the copyright law, where the code actually stated, that only individuals could be held criminally liable, but corporations and their executives can only be charged civilly by the person holding the copyright, which they can't win against big business money. Not only that, but the government will bring charges against an individual copyright violator with out the big business, owning the copyright, being involved. But there has never been a time when the government prosecuted big business for violating and individual's copyright. And to make things worse, many of the racketeering laws are used to prosecute the copyright violator, using laws that are so vague they can be used for anything, and often times the prosecutor is allowed to decide the intent rather than the court. These laws also were not created to be used for those kinds of crimes, but the government uses them for any crime continuously. The law that makes me laugh is called Conspiracy. It means that someone is thinking about doing something illegal, but has not done it yet, and may never. All he has to do to support the conspiracy charge is mention something about it to another person. And if you really believe that these things are not done, and that prosecutors don't lie or create evidence, then I have some great property is south Florida that I would love to sell you. :)

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