Social Security has long been considered the “third rail” of American politics—untouchable and too risky to reform. After all, millions of Americans have worked a lifetime counting on certain commitments. Changing it after decades of hard work is a difficult political maneuver and not typically well tolerated. But as the program’s financial sustainability erodes, and younger generations increasingly question whether they’ll ever see a return on their payroll taxes (60% between 18-49 don’t believe [23]), calls for partial or full privatization are resurfacing. While once dismissed as politically radioactive, the idea of allowing individuals to invest part of their payroll taxes into private accounts is gaining traction—not only among free-market economists but also younger Americans facing record debt, housing costs, and generational inequity.
This article examines the Social Security program’s origin and challenges, the structure and results of its pay-as-you-go model, the growing unfunded liabilities, and the comparative outcomes of private investment alternatives. We explore real-world comparisons with other OECD Countries systems, provide Treasury Secretary Scott Bessent’s position, and quantify the impact of Social Security on the federal budget and intergenerational equity. The article looks at the Pros and Cons of each position, and provides a comparison.
Social Security Origins: A New Deal Legacy
Social Security was established in 1935 under President Franklin D. Roosevelt during the Great Depression. It was designed as a social insurance program to provide financial support to retirees, widows, and the disabled. The system relies on current workers’ payroll taxes to pay benefits to current retirees, forming a “pay-as-you-go” structure (PAYGO, PAYG) rather than a traditional investment-based pension. The PAYGO system relies on the Government to pay these as budget expenses from tax revenue versus a Private Retirement Account that accumulates value over time and pays for itself.
However, the economics of the original program are starting to have some structural challenges that are not easily overcome. Originally, Social Security had 42 workers supporting each retiree. Today, that ratio is closer to 2.7 and falling, a demographic shift that has made the system increasingly unstable [1], especially as the Population pyramid shifts (See Figure 1).
The Math Problem: Pay-As-You-Go and Unfunded Liabilities
Unlike private retirement accounts that accumulate assets over time, Social Security operates as a transfer program. The payroll taxes paid today are not saved or invested for the contributor’s future—they are immediately redistributed to current beneficiaries, this is the Pay-as-you-Go system (often referred to as PAYGO or PAYG).
The key problem with this structure is demographic: as birth rates decline and life expectancy increases, fewer workers are supporting more retirees. This has produced a growing imbalance. According to the Social Security Trustees’ 2024 report, the program faces an unfunded liability of $22.6 trillion over the next 75 years [2].
Unless major changes occur—either through tax increases, benefit reductions, or structural reform—Social Security is projected to exhaust its trust fund by 2033. At that point, benefits would be automatically reduced by an estimated 23% across the board [3]. This would obviously have major, and negative consequences on many Americans that depend on these payments, and likely be seen as a betrayal on commitments made to them for a lifetime of work.
Demographics not on Social Securities Side
As Lifespans increase the U.S. population is getting older and retired citizens continue to increase as a percentage of the population intensifying Social Security’s funding crisis. As of 2024, individuals under 18 comprise about 21.5%, ages 18–44 about 36%, ages 45–64 about 24.6%, and those 65+ around 18% of the total population. [12]
That shrinking working-age cohort (15–64) relative to retirees creates a high dependency ratio. With fewer contributors supporting more beneficiaries, the strain on the system continues to rise. Since Social Security is a Pay as you Go system and not based on investments that have appreciated over time, if you have an imbalance of working age Payers versus older retired beneficiaries the system begins to fall apart economically without restructuring. This is a Worldwide phenomenon as life expectancies continue to increase and countries that have adopted a Pay as you Go system are exposed to demographic shifts that create challenging economics. In general, for these systems to work you must have a wider middle supporting a tapering, and smaller group in retirement.
Figure 1 Source: US Census
Investment Alternative?
So, economically, how does a Privatized system work versus our current Social Security System? To understand the opportunity cost of the current system, consider by comparison a median-income worker contributing the same amount to a private investment account instead of Social Security. The Social Security tax rate is currently 12.4%, split evenly between employee and employer. For a median income of $60,000 (in 2024), that’s $7,440 annually.
Assumptions:
Starting at age 22, retiring at 67
$60,000 annual wage, growing at 1.5% real wage growth
Contributions: 12.4% of wages invested in an S&P 500 index fund
Historical S&P 500 average real return: 7% [4]
Metric
Social Security
Private Investment
Total Contributions (nominal)
$500,000+
$500,000+
Monthly Retirement Income (estimated)
$1,800–$2,000
$6,000–$8,000
Total Lifetime Benefit
~$500,000–$600,000
~$1.5M–$2.5M+
Table 1 Source: Tax Project Estimate Example
It should be noted, that this is a simple example is using mid range income citizens, and does not model the upper and lower incomes which can have significantly different outcomes. It should also be noted that the Private account is exposed to much higher market risks, than a Government backed account, and there are no guarantees of Market performance, or loss of principle. However, as a base example it is clear that the Private solution substantially outperforms the Social Security program, providing up to 4 times the income (See Figure 2, 3). This obviously could be life changing for many individuals, from barely managing to get by to living a more comfortable life in their retirement.
Comparing Private Investment vs Social Security
Figure 2 Source: Tax Project Example EstimateFigure 3 Source: Tax Project Example Estimate
The compound returns of a private investment account (indexed to the S&P 500) dramatically outpaces the flat benefit structure of Social Security. Even adjusted for inflation and risk, the delta is significant.
This was only an example, your exact numbers will differ based on your income and contributions. If you wish to calculate on your own you may try these resources:
This delta in outcomes, as shown in Figures 2 and 3, exists for a reason. Social Security was not designed as an investment vehicle – it’s a redistributive social insurance scheme. High-income earners subsidize lower-income earners. Healthy workers subsidize disabled ones. Individuals with longer life expectancies (often wealthier, healthier demographics) benefit more than those who die earlier.
This redistribution is intentional. Roughly 20% of Social Security benefits go to survivors and disabled individuals. The rest is retirement support—but even this is progressive: a low-wage worker receives a higher replacement rate (often 90% of their income) than a higher-wage worker (25–40%) [5]. Social Security is not a retirement plan per se, but a tax to create a Social Safety net to distribute money to those in greater need.
Global Comparison of Retirement Benefit Plans
America is not alone in providing Retirement Benefit plans, here is a comparison of the Top 25 OECD countries by GDP Retirement Benefit programs.
Country
Model (Gov’t System)
Mandated Supplemental
Funding Method
Solvency Issues
Return Rate
United States
Public
None (voluntary 401(k) excluded)
PAYG
High
Low
Japan
Public
National Pension + GPIF reserve
PAYG + Asset-Backed
Medium
Medium
Germany
Public
Statutory + Emerging Asset Fund
PAYG + Partial Reserves
Medium
Low
United Kingdom
Public
Auto-Enrolled Private Pensions
PAYG + Mandatory DC
Low
Medium
France
Public
Mandatory Supplementary
PAYG
Medium
Low
Canada
Public
CPP (Asset-Backed, Mandatory)
Asset-Backed
Low
Medium
Italy
Public
None (Voluntary Private Optional)
PAYG
High
Low
South Korea
Public
Basic Pension
PAYG
High
Low
Spain
Public
None (Voluntary Only)
PAYG
High
Low
Australia
Hybrid
Superannuation (Mandatory DC)
Asset-Backed
Low
High
Netherlands
Hybrid
Mandatory Occupational DC
Asset-Backed
Low
High
Mexico
Public
Mandatory AFORE (DC)
Asset-Backed
Medium
Medium
Switzerland
Hybrid
Mandatory Pillar 2 DC
Asset-Backed
Low
Medium
Sweden
Hybrid
Mandatory Premium Pension DC
PAYG + Asset-Backed
Low
High
Poland
Public
Employer PPK (Mandatory Opt-Out)
PAYG + Partial DC
Medium
Low
Belgium
Public
None (Voluntary Private Optional)
PAYG
Medium
Low
Austria
Public
None (Voluntary Private Optional)
PAYG
Medium
Low
Norway
Public
Oil Fund Reserves (Public Use)
PAYG + Sovereign Fund
Low
High
Ireland
Public
None (Auto-enrollment pending)
PAYG
Medium
Low
Denmark
Hybrid
ATP + Occupational Mandatory DC
Asset-Backed
Low
High
Finland
Hybrid
Mandatory Public + Reserve
PAYG + Asset-Backed
Low
Medium
Portugal
Public
None
PAYG
High
Low
Czech Republic
Public
None (Voluntary Private)
PAYG
Medium
Low
Greece
Public
None
PAYG
High
Low
Hungary
Public
None
PAYG
High
Low
Table 2 Source: IMF, Worldbank, SSA, OECD, Mercer CFA Institute
Note that all the Top OECD countries, unlike countries like Chile which are fully privatized, have some sort of either a Public or Hybrid (Public/Private) Retirement Benefit plan. The countries with LOW solvency risk all have some type of Asset Backed solution where investments are made that grow over time, except for Norway which essentially has the same with their National Sovereign Wealth Fund, the largest in the World, contributing instead of individuals. It should also be noted, some what paradoxically, that ALL of the countries that pay High rates of return to their Beneficiaries (highlighted in green on Table 2) ALSO all have LOW Solvency issues, the best of both worlds. Lower financial risks, higher returns using some type of Asset Backed system. In contrast, note the many countries with Public plans with PAYG models that have high HIGH solvency risks, and LOW payouts. The worst of all worlds, and unfortunately that is where America stands today.
Budgetary Impact: Growing Expense, No Asset
From a Federal budget perspective, Social Security is the single largest budget item with $1.4 trillion in outlays in FY 2024, accounting for roughly 20% of total federal spending [8].
Critically, Social Security is not a government asset. It does not generate returns or grow the nation’s wealth—it is a liability that increases over time, as benefit obligations rise with demographics. Unlike a sovereign wealth fund or private asset backed investments, Social Security has no capital base, it is not invested and does not grow in value. It is an ever-growing expense that is a liability for our Government, not a revenue-generating investment.
This funding gap, creates a solvency issue for the fund, and projections already anticipate reduced payouts by 2033 [3]. This will require either new sources of revenue (taxes), reduced payouts, or higher eligibility requirements (higher retirement ages). For many people these are unacceptable outcomes.
Privatization: Arguments Against
Social Security has become a critical component of American lives, and the thought of change is scary. It is meant as a Social Safety Net and anything that minimizes that security, and increases risk is viewed rightly with concern. Critics of privatizing Social Security raise concerns of risk, fairness, and protecting the most vulnerable.
1. Loss of the Redistributive Function
Social Security is not just a retirement program—it’s a progressive, redistributive system that transfers income across generations and income levels.
From higher earners to lower earners (due to progressive benefit formulas)
From healthy individuals to those with disabilities or survivors
Across gender and racial wealth gaps
Privatization, by design, makes benefits directly proportional to contributions and investment returns, which eliminates these transfers. This could weaken the social contract, especially for groups who rely most heavily on the system—such as lower-income workers, women, minorities, and the disabled.
2. Erosion of the Universal Safety Net
The current system provides guaranteed income, indexed to inflation, for life. This protects against:
Longevity risk (outliving one’s assets)
Market risk (mismanagement of assets or retiring into a downturn)
Cognitive decline (mismanaging funds in old age)
Disability (declining or limited physical abilities shorten working career)
Wealth Gap (offset lower income participants with relatively higher benefits than higher income groups)
Security (Income for the life of the beneficiary guaranteed)
Spousal (Income for dependent widowed spouses)
Depending on the implementation, Private accounts would shift this burden to individuals, many of whom may lack financial literacy or stability to manage these risks. Even with lifecycle funds and default allocations, the system would no longer guarantee baseline income, exposing millions to potential poverty in old age.
3. Market Volatility and Distributional Inequality
While long-run market returns are historically strong, retirement outcomes under private accounts would vary significantly based on:
Career timing (Market returns vary considerably based on time period e.g., retiring in 2009 vs. 2021)
Investment choices and fees (Loss of principle, poor investment decisions can greatly effect outcomes)
Economic cycles and policy shocks (Macro economic cycles and events like Covid or Wars can greatly impact returns)
Markets are inherently riskier, and Privatization would transfer this risk from the government to the participant. This also introduces intra-generational disparities – two workers with identical careers and investments could end up with vastly different outcomes. Such disparities undermine the risk-pooling foundation of Social Security.
4. Administrative Complexity and Cost
Privatized systems, especially those with choice, may entail higher a variety of extra costs that would be born by the participant.
While centralized custodial platforms managed by the Government can mitigate this, this can all add costs. Currently, the U.S. lacks the institutional infrastructure to support this function.
Privatization: Arguments For
Proponents of private investment accounts argue that the objections to privatization, while valid, are either addressable through design or outweighed by the substantial gains in individual and National financial outcomes. That privatization can increase the material wealth of the country, and put the Nation on a better fiscal course, and that it matches our countries philosophical principles of liberty and ownership.
1. Higher Long-Term Returns and Quality of Life
S&P 500 index funds have returned 6–7% real annually historically, far outpacing the 0–2% implicit return Social Security provides many younger or higher-income workers.
This delta compounds over decades. A median-income worker could retire with 3x or better lifetime income under private investment—even after inflation dramatically improving the quality of life for some populations.
These higher balances could allow for:
Earlier retirement (retirement is about wealth, not age)
Higher consumption in retirement (being able to afford more of the things that add to a quality life)
Improved generational quality of life (being able to pass wealth between generations instead of take it)
2. Intergenerational Wealth Transfer and Ownership
Social Security benefits terminate at death. There is no residual asset to pass on.
Private accounts create inheritable wealth—allowing families, particularly in lower-wealth communities, to build intergenerational assets and break the cycle of dependency.
3. Promotes Individual Liberty and Economic Agency
Privatization returns control to individuals, allowing them to decide how their retirement assets are invested.
This aligns with broader American values of personal choice, property rights, and economic freedom.
4. Transforms a Fiscal Liability into a National Asset
Social Security is currently a growing budgetary liability, with unfunded liabilities exceeding $22 trillion [21].
Private accounts would instead become national household assets, increasing capital formation, savings rates, and investment capacity -similar to the effect of Australia’s superannuation system, which now manages over $2.5 trillion in assets [22].
5. Mitigated Market Risk with Sound Design
Critics overstate market risk in multi-decade investment horizons. Over any 40-year period in U.S. history, a diversified equity portfolio has never yielded a negative real return and has significantly outperformed Social Security funding.
Risks can be reduced or neutralized via:
Lifecycle/default funds
Mandatory annuitization
Capital buffers
Minimum return guarantees (e.g., 2% real floor)
Subsidization of at-risk groups via general revenues or redistribution of Capital Gains from Privatization
6. Fixes System Insolvency Without Raising Taxes
Privatization bypasses the demographic death spiral of the current pay-as-you-go model.
Instead of higher payroll taxes or benefit cuts, reformers propose transitioning to funded accounts over time, optionally grandfathering current retirees.
Reform shifts the structure from intergenerational transfer to self-funded savings, improving long-term solvency and fairness.
7. Localized Equity Support Through Public Custody Models
Inspired by Sweden’s PPM system, custodial platforms can be public, ensuring fee transparency, fraud protection, and mandated passive allocations.
In the U.S., excess capital gains or fund growth could be redirected toward targeted supports (e.g., low-income workers, disabled populations, disaster relief) without sacrificing long-term solvency.
Comparing Private Investments versus Social Security
Item
Social Security
Private Account
Risk
Guaranteed by Full Faith of US Government and the unlimited ability to Tax.
Exposed to Market, can gain and lose principle, much more volatile.
Guarantees
Fully Guaranteed, but dependent on Government Formula which can change.
No guarantees, based on Market returns. Can lose principle.
Performance
Not invested, based on Social Security formula to contribute. Very Low effective equivalent return.
Equity Market based returns outpace other investments. Much higher historical returns for long term investments.
Equity
You own nothing, at death you can not transfer assets.
Assets are owned by individual, can be transferred to beneficiaries.
Asset or Liability
Liability – Social Security is an expense that each year must be paid from current Taxes to Beneficiaries.
Asset – The Government would have no liability, and the value would become an Asset to the Beneficiary.
Unfunded Liability
As a Liability, shortfalls in revenues versus future payouts become unfunded liabilities
No Liabilities
Generational Wealth
Not an asset, so wealth can not be passed on.
Assets can be passed on, increasing Generational Wealth.
Social Safety Net
Provides Lower Income, and Disabled Citizens a Social Safety Net to provide some income, and potentially higher than their contributions.
Does not natively provide Social Safety Net. May help some at risk with higher incomes, but does not address Low Income or Disability. Programs could be setup to address.
Administration and Regulation
Centrally administered by Government, highly Regulated by Congress
To be determined, but likely a combination of Government regulation and administration in conjunction with Private Enterprises to administer program and set guidelines on acceptable plans to reduce risks.
Fraud & Abuse
Overall low, but significant amounts. From 2015-2022 improper payments of $72 billion. [13]
To be determined, but investment fraud, and abuse happen in our current financial system and this will be no different.
Retirement Age
As a Pay As You Go system, Social Security requires more workers to pay for beneficiaries, putting pressure to keep Retirement ages high especially as the retirees makeup larger portions of population.
Likely a Privatized system would have requirements. However, retirement is NOT about age, it is a about wealth. If you have achieved your asset growth, you could retire early, potentially much earlier than Social Security mandated dates.
Fixed Income
Social Security Provides a Fixed Income guarantee for the lifetime of the beneficiary. This means it can’t go down, but also that it doesn’t go up (there are periodic Cost of Living adjustments, but for the most part it is static).
Private accounts do not have Fixed Income guarantees. If you live longer, or have lost principle you are at higher risk. However, you can also have your principle and assets continue to grow, and have much higher assets and income to draw from.
Did the Trump Administration let the Cat out of the Bag?
While not a formal policy announcement from the Trump Administration, in remarks this past week, current US Treasury Secretary Scott Bessent discussed the idea of private retirement accounts as a solution to long-term fiscal imbalances.
“We’ve allowed Social Security to drift too far from its roots. The average American would be far better off with a real investment account – especially if they own it, can pass it on, and see it grow.” [10]
Treasury Secretary Bessent, a former Chief Investment Officer of Soros Fund Management, noted:
“Social Security could be partially privatized by giving younger workers the option to invest a portion of their payroll tax into low-cost index funds. Over 40 years, the compounding returns would generate far more wealth than the current system, which is essentially insolvent.” [6]
Bessent views private accounts not only as more financially sustainable but also as a path toward wealth-building for younger and disadvantaged Americans who are currently locked into our current Social Security System that is a low-yield, Pay-as-you-go system.
“In a way, it is a back door for privatizing Social Security,” “If, all of a sudden, these accounts grow and you have in the hundreds of thousands of dollars for your retirement, that’s a game changer, too.” [11]
While this topic has been passed around in policy discussions for a long time, privatization has always brought out fears, and opposition.
Conclusion: The Cat May Already Be Out of the Bag
Social Security reform is no longer an ideological debate—it is an actuarial necessity to keep the system solvent. The system’s financial path is unsustainable, and young Americans increasingly question whether they are paying into a program that will exist when they retire.
The Tax Project does not weigh into the debate, just presents facts and data, and hopes that Smarter more informed Citizens help make their choices. To some, the choice maybe obvious, for others the fear and risks of changes outweigh any gains. All have valid concerns and points. What is clear, is that the US Social Security program has structural challenges that won’t be resolved without some types of reform, and that delaying or ignoring the problem has not helped the challenge. There are working models out there, and we believe that Americans when presented with facts and data will always make the best choices. We will always bet on America’s Future.
Emphatically: No, Social Security is not a Ponzi scheme.
Social Security is a legally mandated social insurance program operated by the U.S. federal government. It provides retirement, disability, and survivor benefits to tens of millions of Americans and has been doing so for nearly 90 years. It is administered by the Social Security Administration (SSA), funded primarily through payroll taxes, and governed by a defined benefit formula that is public, regulated, and periodically updated.
By contrast, a Ponzi scheme is an illegal, fraudulent investment operation. It promises outsized returns to earlier investors, not from genuine profits or investment earnings, but from the contributions of newer investors. Ponzi schemes inevitably collapse once new investment slows or stops, revealing no actual value creation.
So by definition, Social Security is not a Ponzi scheme. It is legal. It is transparent (in a formal, institutional sense). And it is backed by the full faith and credit of the United States government.
But if we set aside legal status and moral framing for a moment and look only at structure and mechanics, we find a more complicated truth:
Social Security shares more structural features with a Ponzi scheme than most people realize.
Ponzi Schemes: Mechanics and History
The term “Ponzi scheme” originates from Charles Ponzi, who in 1920 promised 50% returns in 90 days to investors by supposedly arbitraging international reply coupons. In reality, he paid earlier investors with the money collected from newer investors, not from actual profits. Ponzi’s scam collapsed once he could no longer recruit enough new participants to cover the payouts. He was arrested and convicted for fraud.
More recently, Bernie Madoff orchestrated the largest Ponzi scheme in history, defrauding investors of over $65 billion over decades. Again, no legitimate investment activity took place; returns were paid with inflows from new participants.
Key features of a Ponzi scheme:
Pays existing participants using funds from new participants
Does not invest funds to generate independent returns
Promises reliable payouts that appear risk-free
Collapses once new inflows cannot cover existing obligations
Involves deception or concealment
Illegal under several US Statutes
Social Security & Ponzi Schemes: The Parallels
If we take an honest look at Social Security though, for many the similarities may make them feel a little more uncomfortable than we may want to admit. The structure of Social Security has many parallels to a Ponzi scheme when viewed through a functional and financial lens. Like a Ponzi scheme, Social Security operates on a pay-as-you-go basis, where current inflows from active participants are used to fund benefits for earlier ones. Meaning, you need new people paying into the scheme to continue it or it collapses. There is no segregated account or investment portfolio tied to individual contributions, nor is it generating returns greater than payouts. Instead, future payouts are contingent on future tax revenues, not on returns from invested principal. This interdependency, reliance on continuous contributions, and absence of asset-backed funding models place Social Security structurally closer to a redistribution mechanism like a Ponzi scheme than a conventional retirement savings system.
Feature
Ponzi Scheme
Social Security
Pays earlier participants with new inflows
✅
✅
Not backed by invested assets for each participant
✅
✅
Depends on continued participation to sustain payouts
✅
✅
Participants believe they’re getting back what they put in
✅
✅
Disclosure of risk/shortfall is limited or misunderstood
✅
✅
Legal, government-administered
❌
✅
Transparent formulas and actuarial projections
❌
✅
Collapse avoided via taxation, law, or currency issuance
❌
✅
In a private context, a retirement firm that:
Took your contributions,
Didn’t invest them,
Promised future payments from other people’s future contributions,
Lacked sufficient reserves,
And failed to clearly disclose this model
This firm would be investigated and likely prosecuted by the Securities & Exchange Commission (SEC), Department of Justice (DoJ), and state attorneys general. That firm would most likely be considered a Ponzi scheme, and prosecuted as such.
How Social Security Actually Works
Social Security is funded primarily through payroll taxes under the Federal Insurance Contributions Act (FICA). Workers and employers each contribute 6.2% of wages up to a wage cap, while the self-employed pay the full 12.4%. These taxes go directly into the trust funds for Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).
However, these trust funds do not hold traditional investments. Instead, excess revenues are loaned to the federal government in exchange for special-issue Treasury securities. While these earn interest, they are not market-tradable and do not represent real economic assets that can be liquidated to fund future liabilities without affecting overall federal borrowing needs. Additionally, and materially, these funds do not generate enough gains to pay for existing payouts.
As of the mid-2020s, Social Security’s annual tax revenue is less than its benefit payments. The shortfall is covered by redeeming trust fund securities, but those funds are projected to run out by 2034. After that, benefits can only be paid out of current payroll tax revenues, which are expected to cover about 77% of promised benefits.[3]
This dynamic underscores the pay-as-you-go nature of Social Security. Contrary to the popular belief that one’s payroll contributions are saved and invested for personal retirement, the program relies on continuous contributions from current and future workers to support today’s retirees. In that sense, it is a form of intergenerational wealth transfer that transfers wealth from one generation to the previous generation rather than a self-funded retirement system.
The Transparency Problem
Technically, Social Security is transparent. The SSA publishes annual Trustees Reports detailing projected income, outflows, actuarial assumptions, and trust fund balances. The legal formulas for calculating benefits are public.
But practical transparency is very different from technical transparency.
Most Americans believe Social Security functions like a personal retirement plan — that their taxes are set aside, invested, and paid back to them. The SSA benefit statements reinforce this illusion, showing how much you’ve “paid in” and what you’ll “receive.” There is no plain-language disclaimer stating:
“Your taxes are used immediately to pay current retirees. No funds are saved or invested on your behalf. Your future benefits depend on future workers paying taxes to fund the system.”
By any standard that applies to private finance, fiduciary duty, or consumer protection law, this would be considered not only misleading by omission, but potentially fraudulent. A private institution presenting such a structure—suggesting that individual contributions are saved or invested for the contributor’s benefit, while actually funding current obligations with no individualized reserve—would likely face charges of deceptive practices, material misrepresentation, and regulatory violations under securities and consumer law. [4]
A study by RAND Corporation on public literacy of Social Security found that nearly half of adults earned a D or F on a basic Social Security knowledge quiz demonstrating significant misunderstandings of system mechanics. [1] Though no direct study was found on the public understanding of the Pay as you Go mechanism of Social Security, the government does little to actively dispel the myth that it is acting as a “trust fund.”
The Unfunded Liability: The Numbers Behind the Structure
The most recent Social Security Trustees Report (2025) projects a 75-year unfunded liability of $25.1 trillion in present-value terms [2]. This means that, over the next 75 years, Social Security is projected to pay $25.1 trillion more in benefits than it will collect in dedicated revenue.
By 2034, the combined OASDI trust fund is projected to be exhausted. After that, unless Congress acts, the system will only be able to pay about 77% of scheduled benefits from incoming payroll taxes alone [3].
Social Security began running a cash-flow deficit in 2010. It has been drawing down its trust fund reserves since 2021. The trust fund peaked at around $2.9 trillion and is now declining.
The trust fund itself is not a savings account. It consists of special-issue Treasury securities — effectively an IOU from the government to itself. These securities are redeemed to pay benefits, but when they run out, there is no dedicated asset base.
Why It Matters
Calling Social Security a Ponzi scheme in the strict sense is inaccurate. But calling it entirely different is also misleading.
The difference lies not in structure, but in enforcement power:
The U.S. government can tax future workers
It can borrow in financial markets
It can print money if necessary
These options allow it to postpone collapse indefinitely. But they do not change the basic fact: today’s taxes fund today’s retirees.
If birth rates fall, if wage growth stalls, if demographics worsen, or if political consensus breaks down, the system will require either:
Higher taxes
Lower benefits
Benefit eligibility reforms
Or external financing through debt or inflation
A private scheme operating under these conditions would be criminal. Government operation makes it lawful — but it does not make it financially self-sustaining.
Conclusion
Social Security is not a Ponzi scheme in the legal or criminal sense. It is backed by the full faith and credit of the United States and its unlimited ability to tax and issue money. However, it shares many structural characteristics with Ponzi schemes:
Pay-as-you-go
Intergenerational transfer reliance
Lack of individual funding
Misconceptions about how benefits are financed
It is sustainability is not rooted in economics, but in politics and public trust. Although understanding of how Social Security works, that it functions on many of the same structures of Ponzi Schemes, there is high trust in Social Security if not the full benefits.
The sooner Americans understand the true nature of Social Security — as a government-mandated, intergenerational tax-and-transfer system that acts and behaves very differently than individual retirement plans — the more honest and productive the reform debate will become.
Mary Meeker’s highly anticipated “USA, Inc.” report, released in March 2025 by Bond Capital, once again delivered a meticulously researched financial assessment of the United States. Following her seminal 2011 “USA Inc.” report, this 2025 iteration provides a critical updated snapshot, viewing the U.S. federal government through the lens of a corporate balance sheet and income statement. The core message remains consistent: America’s fiscal trajectory is a pressing concern, though the urgency and prescribed solutions vary wildly depending on one’s economic philosophy.
The original 2011 “USA Inc.” report served as a stark wake-up call, highlighting accelerating debt accumulation and growing unfunded liabilities, particularly in Social Security and Medicare [1]. It laid out a business-like accounting of the nation’s finances, suggesting that without significant changes, the U.S. was heading towards an unsustainable path.
Themes and Key Findings from USA, Inc. 2025
Fast forward to March 2025, and the latest “USA, Inc.” report paints a picture of deepening fiscal challenges. The delta from 2011 is not merely a quantitative increase in debt; it’s a qualitative shift where previously projected liabilities have materialized and accelerated, exacerbated by recent global events and policy responses.
Key findings and themes from the USA Inc. 2025 report:
Escalating National Debt: The national debt has surged to levels exceeding historical peaks relative to GDP, projected to continue its upward trajectory [2]. Figure 3
Crowding Out by Interest Payments: A significant and alarming finding is the rapid growth in net interest payments on the debt, which are now consuming an ever-larger portion of the federal budget, crowding out other critical federal investments like infrastructure, education, or defense [3]. Figure 4
Accelerated Unfunded Liabilities: The “epic” and rising nature of off-balance sheet liabilities, primarily for entitlements like Social Security and Medicare, continues to be a central theme. These commitments amount to multiples of the on-book debt, a warning bell that was already ringing in 2011 but is now blaring louder [1, 4]. Figure 2
Deteriorating Net Worth: Mirroring a corporate entity, the report likely shows a continued deterioration of USA Inc.’s net worth, implying a diminished financial flexibility to handle future national crises or unexpected economic shocks [1]. Figure 1
Figure 1 Deteriorating Net Worth, USA Inc.Figure 3 Escalating National Debt, USA Inc.
Figure 2 Unfunded Liabilities, USA Inc.Figure 4 Crowding out by interest payments, USA Inc.
Economic Interpretations: A Spectrum of Views
This grim outlook, however, isn’t universally accepted. Mainstream economics broadly encompasses traditional (neoclassical) views and Keynesian economics. Traditional economists often emphasize the importance of balanced budgets, fiscal discipline, and minimal government intervention, fearing that large deficits lead to crowding out of private investment and inflationary pressures. Keynesian economics, while acknowledging the long-term need for fiscal sustainability, emphasizes the role of government spending in stimulating demand during economic downturns, arguing that deficits can be beneficial when the economy is operating below its potential.
Modern Monetary Theory (MMT) represents a more heterodox, almost “post-Keynesian,” perspective. MMT posits that a sovereign government, which issues its own fiat currency, cannot technically “run out of money” and therefore isn’t constrained by debt in the same way a household or business is [6]. From an MMT perspective, the numbers presented in “USA, Inc.” might be seen not as an impending crisis, but rather as an accounting of necessary public spending to achieve societal goals, with inflation being the true constraint, not debt levels. Proponents of MMT would likely argue that government spending creates the very financial assets that fund the debt, and that fears of “crowding out” are overblown for a currency issuer [6].
Support for MMT remains a minority view [10] within the broader economics community. While it has gained increased public discussion, particularly since the 2008 financial crisis and in response to discussions around large-scale public spending, most mainstream economists, including many Keynesians, remain skeptical of its core tenets regarding government debt limits. They typically acknowledge a currency-issuing government’s ability to print money but emphasize the severe inflationary and currency devaluation risks associated with doing so without corresponding real economic output [7].
Conversely, mainstream economists and fiscal conservatives, supported by research from institutions like the Congressional Budget Office (CBO) [2], Brookings Institution [3], and the Peter G. Peterson Foundation [4], see the escalating debt as a significant long-term threat. These analyses consistently project that without policy changes, deficits will remain unsustainably high, leading to increased interest costs that consume a growing share of the federal budget.
The Impact If Nothing Is Done
If the trends highlighted in “USA, Inc. 2025” remain unaddressed, the potential economic ramifications could be severe and far-reaching:
Increased Taxes and/or Reduced Public Services: To service the growing debt, the government would eventually face difficult choices: raise taxes, cut spending on essential public services (like education, infrastructure, or defense), or a combination of both [5, 9].
Crowding Out of Private Investment: As the government borrows more, it competes with the private sector for available capital. This can drive up interest rates for businesses and consumers, making it more expensive for companies to invest and expand, ultimately stifling innovation and economic growth [5].
Stagflation Risk: An uncontrolled increase in the money supply to finance deficits, coupled with supply-side constraints, could lead to stagflation—a damaging combination of stagnant economic growth, high unemployment, and rising inflation [8].
Devaluation of the Dollar: Sustained large deficits and a perceived inability to manage debt could erode international confidence in the U.S. dollar. This could lead to a devaluation of the currency, making imports more expensive, reducing purchasing power for Americans, and potentially undermining the dollar’s status as the world’s reserve currency [9].
Reduced Fiscal Flexibility: A high debt burden leaves the government with less capacity to respond to future crises (e.g., pandemics, natural disasters, economic recessions) without further destabilizing its finances [2, 5].
The Importance of Government Financial Literacy
The underlying message of “USA, Inc.” – both the 2011 and 2025 versions – transcends partisan economics: government financial literacy is paramount. For citizens to make informed decisions and hold their elected officials accountable, a basic understanding of the nation’s financial statements is crucial. Meeker’s report, while crafted with an investor’s precision, is seemingly intended for a broad audience, distilling complex financial data into digestible charts and narratives.
Paradoxically, while the report aims for public comprehension, its detailed nature means it will likely be consumed and debated most rigorously by researchers, academics, economists, and financial industry professionals. Yet, those who will be most profoundly impacted by the underlying fiscal events – average citizens whose future taxes, public services, and economic opportunities are at stake – may be the least likely to fully engage with or understand the nuances of the document. This highlights a critical challenge: translating complex fiscal realities into actionable insights for the very public it seeks to inform. While there maybe disagreement over the impact, the trends and path are troubling and we hope that all Americans make informed choices regarding America’s future.
[7] Mankiw, N. G. (2020). A Skeptic’s Guide to Modern Monetary Theory. NBER Working Paper No. 26650. National Bureau of Economic Research. https://www.nber.org/papers/w26650
The future of the United States economy, and perhaps the equity between generations, presents an immense challenge and choice with how to manage fiscal responsibility for unfunded liabilities. The National Debt is a frequently discussed topic and people have a general awareness that it should be managed intuitively. By its very nature it is a common topic in the financial zeitgeist, much like the choppy white water on the ocean’s surface. Unfunded Liabilities though are like a hidden current beneath a calm surface, these commitments represent promises made today that lack a clear, fully funded pathway to fulfillment and are a less frequently discussed topic that may not gather attention. A segment that appeared on “60 Minutes” with Federal Reserve Chairman Jerome Powell discussed the economy and if the National Debt is a danger to the economy. Powell denoted that in the long run “the US is on an unsustainable fiscal path” and that we are “borrowing from future generations.” To be fair this question was related to the National Debt and does not even address Unfunded Liabilities which only compounds the challenge. This begs to question whether the current generation is making a “Faustian Bargain,” are we trading long-term societal health and prosperity for short-term comfort by deferring policy decisions.
To answer this question, we must first understand what unfunded liabilities are, their colossal scale, how they fit into the overall fiscal health of our country, and their implications for the future.
What are Unfunded Liabilities?
In simple terms, an unfunded liability is a future financial obligation for which there is no sufficient pre-existing asset or dedicated revenue stream. Unlike the national debt, which represents accumulated past borrowing, unfunded liabilities are projections of future shortfalls in programs the government is legally or morally committed to. These often involve long-term entitlement programs where the present value of future promised benefits far exceeds the present value of projected future revenues.
Main components of the U.S. Unfunded Liabilities:
• Social Security: The Old-Age and Survivors Insurance and Disability Insurance (OASDI) programs, which provide retirement, disability, and survivor benefits. • Medicare: The federal health insurance program for people 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD). This includes Hospital Insurance (Part A), Supplementary Medical Insurance (Part B), and Prescription Drug Coverage (Part D). • Federal Employee and Military Retirement Benefits: Pensions and other post-retirement benefits for civilian federal employees and military personnel. • Veterans’ Benefits: Compensation, pensions, healthcare, and other support for veterans and their families. These are not merely accounting entries; they represent promises made to millions of Americans—promises that, under current law and demographic projections, cannot be met without significant adjustments.
The Colossal Bill: Quantifying the Unfunded Commitments
The scale of these unfunded liabilities is staggering, dwarfing the already formidable national debt. The most comprehensive and authoritative source for these figures is the Financial Report of the United States Government, prepared annually by the U.S. Department of the Treasury in coordination with the Office of Management and Budget (OMB), and audited by the Government Accountability Office (GAO) [1]. It is crucial to note that these figures are typically presented as “present values” over a 75-year projection period, meaning future shortfalls are discounted to their equivalent value in today’s dollars.
As of the 2024 Financial Report of the United States Government (released February 2025) [1]:
• Total Social Insurance Net Expenditures (primarily Social Security and Medicare): This combined shortfall represents the largest portion of the nation’s unfunded liabilities. For Fiscal Year 2024, this amounted to approximately $78.3 trillion over a 75-year projection period [1]. This figure alone is more than twice the total annual Gross Domestic Product (GDP) of the entire U.S. economy.
Let’s break down the two giants within this category:
• Social Security (OASDI): The 2024 Social Security Trustees’ Report indicates an unfunded obligation of approximately $25.4 trillion over the 75-year projection period [2, 3]. Without legislative action, the Old-Age and Survivors Insurance (OASI) Trust Fund is projected to be able to pay 100 percent of scheduled benefits until 2033. After that, it will only be able to pay about 79 percent of scheduled benefits from continuing income [3].
• Medicare (Parts A, B, & D): Medicare’s unfunded liability is even larger. The 2024 Medicare Trustees’ Report projects an unfunded obligation of approximately $52.8 trillion over the 75-year period [1, 3]. The Hospital Insurance (HI) Trust Fund (Medicare Part A) is projected to be able to pay 100 percent of scheduled benefits until 2036, after which it will be able to pay about 89 percent [3]. Medicare’s financial challenges are exacerbated by rising healthcare costs and an aging population. Beyond these primary social insurance programs, other significant unfunded commitments contribute to the overall fiscal picture:
• Federal Employee and Veteran Benefits Payable: These represent accrued liabilities for pension and other post-retirement benefits for civilian federal employees and military personnel, as well as veterans’ compensation and burial benefits. The 2024 Financial Report of the United States Government reports $15.0 trillion for “Total Federal Employee and Veteran Benefits Payable” on the government’s balance sheet [4]. It is important to distinguish that this is a balance sheet liability, reflecting accrued benefits to date, rather than a 75-year actuarial projection of all future shortfalls like Social Security and Medicare. However, it still represents a significant long-term commitment that needs to be funded.
• Other Unfunded Plans and Liabilities: While less dramatic in scale compared to Social Security and Medicare, other programs carry unfunded aspects. Examples include certain aspects of Medicaid (a jointly funded federal-state program where federal mandates can create unfunded burdens on states), and some federal loan programs or insurance commitments where future payouts could exceed reserves. The concept of “unfunded mandates” on states, for instance, like those related to environmental regulations or disability access, effectively shifts federal obligations to local governments, creating their own set of fiscal challenges [5]. Due to the diverse nature of these obligations and the varied methods of accounting for them (ranging from spending projections to contingent liabilities or balance sheet entries), there isn’t a single, universally accepted, aggregated dollar amount for “Other Unfunded Plans and Liabilities” that directly compares to the 75-year present value projections for Social Security and Medicare. While they contribute to the nation’s broader fiscal challenges, the most authoritative reports primarily focus their explicit “unfunded liability” calculations (in terms of present value of future shortfalls over 75 years) on the major entitlement programs of Social Security and Medicare. When considering the total picture of long-term fiscal imbalance, beyond just Social Security and Medicare, some broader analyses, such as those from the Penn Wharton Budget Model, project an “infinite horizon fiscal imbalance” (covering all current and future generations) that could reach $162.7 trillion as of 2024 [6]. This figure underscores the true magnitude of the nation’s fiscal challenge.
Diagram 1 Source: US Treasury
Unfunded Liabilities in the Context of the National Debt
It’s crucial to understand the relationship between unfunded liabilities and the national debt. The national debt is the total accumulated outstanding borrowing by the U.S. Federal Government over the nation’s history. As of May 8, 2025, the U.S. national debt stands at approximately $36.21 trillion [7]. While the national debt is the sum of past deficits, unfunded liabilities represent promises for future spending that are not yet financed or due. However, they are deeply intertwined. As entitlement programs like Social Security and Medicare mature, their unfunded portions translate into increasing demands on the federal budget. When current revenues are insufficient to cover these mandated benefits, the government must either increase revenue by raising taxes, or borrow to make up the difference, thereby adding to the national debt. The national debt is the manifestation of yesterday’s unfunded promises and ongoing spending decisions. Unfunded liabilities are the future promises that, unless addressed, will become tomorrow’s addition to the national debt. This perpetual cycle creates a growing burden.
The Impact on Future Generations: A Faustian Bargain?
The profound question at the heart of this fiscal dilemma is whether current generations are making a “Faustian Bargain” with future generations.
Faustian Bargain: The term “Faustian Bargain” originates from the classic German legend of Faust, a scholar who, disillusioned with the limits of human knowledge, makes a pact with the demon Mephistopheles (i.e., Deal with the Devil). In exchange for limitless knowledge, worldly pleasures, and power for a set period, Faust agrees to surrender his soul to the devil. The essence of a Faustian bargain is a trade-off: an immediate, often enticing benefit or power, at the cost of something valuable, often an intangible, moral, or spiritual value eventually. The bargainer often recognizes the malevolent nature of the deal and its ultimately tragic or self-defeating outcome [8].
Answering the Question?
Are current generations, by failing to address the growing unfunded liabilities, effectively making a Faustian bargain? The “immediate benefit” is the continued receipt of promised Social Security, Medicare, Pensions, and other benefits to current generations without politically painful reforms and in essence transferring that burden to future generations. So unlike Faust who received the benefit and had to deal with the consequence, the current generation will receive the benefit without the consequence. Meaning the current generation can pass the consequences on by doing nothing.
Americans should expect promises made to be kept, and short falls in funding are a recurring no fault event. However, if the goal is to promote long term health and prosperity than something should be done. Politicians aren’t motivated to push to address this political third rail that would involve either raising taxes, cutting spending, reducing benefits, raising eligibility ages or likely a combination of these. So much like the song Freewill by the band Rush, “If you choose not to decide, you still have made a choice.” By doing nothing, the current generation is passing this burden on.
What happens if we don’t address?
This may be more of a moral dilemma than fiscal question as the fiscal health and economic opportunity of future generations is at stake with the most severe impact on future generations. If unchecked, the escalating unfunded liabilities will lead to:
• Higher Taxes: Future generations will likely face higher taxes to cover these mounting obligations. This could stifle economic growth, reduce disposable income, and limit their ability to save and invest. • Reduced Government Services: As a greater portion of the budget is consumed by mandatory entitlement spending (making up large portions of the unfunded liabilities) and interest on the debt, less funding will be available for other crucial public services like education, infrastructure, research and development, and national defense—investments that are vital for future prosperity and competitiveness. • Slower Economic Growth: High levels of public debt and unsustainable entitlement programs can crowd out private investment, and lead to slower overall economic growth. This means future generations will inherit a less dynamic economy with fewer opportunities. • Intergenerational Inequity: The burden is disproportionately shifted to younger and future generations, who will pay into systems that may offer them fewer benefits than the US is currently providing. This raises fundamental questions about fairness and the social contract between generations. • Reduced Fiscal Flexibility: The government’s ability to respond to unforeseen crises (economic downturns, pandemics, wars) will be severely constrained if a large portion of its budget is already locked into mandatory spending and debt service. How can this be addressed? In short, not very easily. The pathway to addressing would likely require a combination of policy choices that include: • Reforming Entitlement Programs: This could involve adjusting eligibility ages, modifying benefit formulas, introducing means-testing, or reducing benefits for programs like Social Security and Medicare. • Controlling Healthcare Costs: Addressing the underlying drivers of healthcare inflation is critical for the long-term solvency of Medicare. Finding efficiencies will mitigate the risk. • Increased Revenue: This might involve tax increases and must be balanced carefully to consider the impact on economic growth. • Economic Growth: A stronger economy generates more tax revenue and helps to manage debt more effectively. Economic growth will ease fiscal challenges across the board.
What is the Cost?
The 2024 Financial Report of the U.S. Government highlights a “75-Year Fiscal Gap” of 4.3% of GDP [1]. This means there is a short fall in revenue to fund programs that will require some combination of reduced spending, reduction in services, higher taxes, and hopefully some higher revenue due to growth. To truly grasp the magnitude of this challenge, let’s contextualize and estimate per citizen in Table 1. Using a rough estimation if we apply that 4.3% gap to a 40 hour working week you get about 1.72 hours a week of extra contributions needed to pay for the gap.
Program
Cost
Cost per Citizen
Social Security (OASDI)
$25.4 Trillion
$76 Thousand
“Medicare (Parts A, B, & D)”
$52.8 Trillion
$157 Thousand
Federal Employee & Veteran Benefits
$15 Trillion
$44 Thousand
Other Unfunded Liabilities
?
?
Total
$93.2 Trillion
$277 Thousand
Table 1
Conclusion
It is right to be skeptical of 75 year government estimates, and a lot can happen and change in that period. However, the challenges are very real and will ultimately manifest themselves in unpleasant ways unless acted upon. Like the seemingly harmless slow drip of water that over time can be tremendously powerful carving canyons and moving mountains. The moral dilemma of addressing the issue head on or pushing it to another generation will present difficult choices for citizens and leaders. The solutions will likely require making tough trade offs and sacrifices. The Faustian Bargain of immediate gratification and deferring tough choices shifts the primary cost, long-term well-being and opportunities on to future generations. Ignoring this challenge today has ethical and economic ramifications that will resonate for decades.
The challenge is immense, but not insurmountable. The question is whether today’s leaders and citizens possess the foresight, will, and courage to confront these head-on, or if we continue to make a Faustian bargain, leaving future generations to pay the price. The choices we make today will define the economic destiny and intergenerational equity of tomorrow.
References
[1] Treasury: 2024 Financial Report of the United States Government. https://fiscal.treasury.gov/files/reports-statements/financial-report/2024/full-financial-report.pdf [2] Social Security Administration (SSA): 2024 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. https://www.ssa.gov/oact/tr/2024 [3] U.S. Department of the Treasury: Fact Sheet: 2024 Social Security and Medicare Trustees Reports. https://home.treasury.gov/system/files/136/TR-2024-Fact-Sheet.pdf [4] Treasury: Note 13. Federal Employee and Veteran Benefits Payable from the 2024 Financial Report of the United States Government notes section. https://fiscal.treasury.gov/files/reports-statements/financial-report/2024/notes-to-the-financial-statements13.pdf [5] Wikipedia: Unfunded Mandate https://en.wikipedia.org/wiki/Unfunded_mandate [6] Penn Wharton Budget Model: Complete Measures of U.S. National Debt. https://budgetmodel.wharton.upenn.edu/issues/2025/1/27/complete-measures-of-us-national-debt [7] Treasury: Understanding the National Debt. https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/ [8] Britannica: Faustian bargain. https://www.britannica.com/topic/Faustian-bargain [9] United States Census Bureau: U.S. and World Population Clock. https://www.census.gov/popclock/
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