Give me your green, your crisp, your well-earned cash...I'll pay you back eventually.

Bernard Madoff, the man behind the recent Ponzi scheme that robbed people of approximately 50 billion dollars, was sentenced today to 150 years in prison. In an article from the Associated Press today, the judge "needed to send a symbolic message to potential imitators and to victims who demanded harsh punishment." For those who do not know, a Ponzi scheme is a method of taking people's money and providing returns on their 'investment' with money from other people. In order to keep it going a constant increase in money is required; this comes from a constant increase in people who are attracted by the promise of a healthy profit. Often, this requisite of increasing the number of people involved causes the scheme to be so large that it cannot be stopped without causing many people to lose all of their invested money.

Based on the context, it seems to me that the sentence was purposely harsher than necessary, but that is a secondary issue in my opinion. My primary point of concern is that there is a similar legal process that is using exactly the same basic principles as a Ponzi scheme. It is Social Security, a United States government operation. For the sake of clarity, the federal government actually does invest excess Social Security tax money in Treasury bonds, but this is not solely reserved for Social Security; Treasury bonds can be used for anything the government wants, from food stamps to fighter planes. Just like a Ponzi scheme, it is receiving money from some people (young workers) and using it to pay other people (retirees and those on disability, for example). And just like a Ponzi scheme, the basis of Social Security is faulty. Straight from the horse's mouth, if Social Security is not modified the benefits could be paid in full until 2037, at which point the supply would be sufficient to pay only 76% of currently expected benefits. Just two years ago the expected year was 2041. Also, by 2017 the system will begin paying out more than it is bringing in. It is clear that the well is running out.

There is a lot of talk on Capitol Hill about what needs to be done. The same website linked above mentions a "simple reallocation of current tax rate levels, as was done in 1994." In plain English, that means requiring current workers to pay more in taxes to fund the benefits of those receiving Social Security. The current payroll tax is 12.4% (6.2% paid by the employer and the other half by the employee), and increasing it to 16.26% in 2037 is expected to be sufficient, at least for 45 years. Mind you, these estimates apply to nearly 30 years in the future and could easily be wrong. If the 2041 to 2037 switch is any indication, a wrong estimate won't be an overestimate.

The thing is that if I was running a Ponzi scheme there is no way I could get away with this. Think about it. You pay me money every year and I promise you a return on your invesment decades down the road, but in the meantime I may either force you to pay me more money or tell you that you won't be receiving the payment as soon as you thought. Plus, if you decide to not pay me it is a criminal offense. Really? This is how it works?

I'm not suggesting that Social Security should be completely eliminated, because many people count on it as a means of survival. However, it is evident that the current modus operandi is not sustainable without increasing taxes, decreasing benefits, or both. The SSA itself says that Social Security was never meant to be the sole source of income in retirement, so the best idea is to heed their advice and begin planning for your retirement as soon as possible.