We need to talk about George Kamel’s Social Security video…

The speaker expresses admiration for George Kamel and the entire Ramsey team, acknowledging a prior collaboration and recent video by George titled "The Biggest Ponzi Scheme Ever" about Social Security. While respecting George and appreciating the attention he brings to the topic, the speaker disagrees with parts of his argument, particularly the assertion that Social Security is a Ponzi scheme and that workers lose millions in potential investment growth. Both agree that individuals are their best shot at a great retirement and should save, invest, and build wealth outside of Social Security. The core disagreement lies in George's calculation that workers could create millions by investing what they pay in Social Security taxes. The speaker argues this idea mixes dollars from different decades and overlooks crucial aspects of what Social Security provides. Social Security faces a serious financing problem due to congressional inaction. Preserving the program will likely require a combination of changes, such as increasing taxes, slowing benefit growth, adjusting benefits for high-income earners, or delaying the full retirement age. The speaker agrees with George that Social Security alone is not an entire retirement plan; investments are essential for desired lifestyles, travel, and leaving an inheritance. George's claim that Social Security is a "ticking time bomb" that will run out of money is addressed. The speaker clarifies that Social Security has trust funds with reserves. While the Old Age and Survivors Insurance Trust Fund is projected to deplete its reserves by 2032, this does not mean Social Security will have "no money." Even after depletion, incoming payroll tax revenue would cover approximately 78% of scheduled retirement and survivor benefits. If retirement and disability funds are considered together, this figure rises to about 83% until 2034. While a 17-22% reduction would be devastating, it's not a 100% disappearance. An expert, Andrew Biggs, states the likelihood of current workers receiving nothing is "practically nil." The true message is that Congress must act, or benefits will be reduced by around 20-22%, not eliminated. The speaker then dissects George's example: a worker starting full-time at 23, stopping at 60, earning an average of $50,000 per year, contributing $3,100 annually to Social Security (totaling $115,000 over 37 years). George calculates that investing this $3,100 annually at a 10% return would grow to $2.4 million by age 67. The speaker points out flaws in this simplified illustration. First, it doesn't account for how Social Security contributions change over time. For a worker turning 67 in 2026 who started in 1982, an income comparable to $50,000 today would have been around $14,000 in 1982, and the Social Security tax rate was lower (5.4%). This worker would have contributed only about $780 in 1982, not a constant $3,100. The power of compounding over a longer period for earlier contributions is significant. While George's broader point that private investing could yield higher returns is valid, an accurate estimate would use actual wages and tax rates for each year. Second, the comparison neglects Social Security's indexing mechanisms. Social Security adjusts historical earnings through "wage indexing" before calculating the initial benefit. Earnings from earlier years are adjusted based on national average wage growth until the worker turns 60. For example, $14,000 earned in 1982 would be indexed to approximately $54,000 when calculating benefits. After eligibility, benefits receive annual "cost of living adjustments" (COLAs) based on the Consumer Price Index. George's comparison compounds investments in nominal dollars but freezes Social Security benefits at a nominal $2,000 per month, ignoring COLAs. A $2,000 benefit today would be approximately $4,600 in 2061 with a 2.4% inflation assumption. The comparison must use consistent types of dollars. Third, the $2,000 average benefit figure used by George is problematic. It includes a wide range of individuals: those who claimed early, low-income earners, workers with uneven histories or fewer than 35 years of earnings, and retirees from different decades. Social Security is progressive, replacing a higher percentage of career average earnings for low-wage earners (up to 79%) compared to medium (43%) and maximum earners (28%). It was designed to replace a portion of earnings, not 100%. Crucially, the speaker highlights that Social Security is not just for retirement; it's a social insurance program. It finances survivor benefits and disability benefits. A 40-year-old suffering a disabling illness or injury, with young children and a mortgage, might not have enough in investment accounts to support their family for decades. Disability benefits provide essential income. Similarly, survivor benefits support families when a primary earner dies, including millions of children. These benefits offer financial stability during unimaginable times. Social Security also protects against longevity risk, providing a monthly benefit for life, regardless of how long one lives or stock market fluctuations. To fairly compare Social Security with private investing, one would first need to price comparable disability insurance, survivor protection, and inflation-adjusted lifetime income. Only the remaining amount could then be invested. While private investing would likely still yield a higher financial outcome in this scenario, it requires taking on additional risk, and maximizing returns is not Social Security's primary objective. The comparison also assumes every worker would consistently invest every available dollar for decades. Many low-wage workers use nearly all their income for immediate needs, and some might choose to spend any extra money rather than invest it. A national retirement system must account for varying incomes, financial margins, and abilities to absorb life's risks. The larger question is the cost of replacing Social Security's survivor, disability, inflation, and longevity protections. There would also be a transitional cost, as current payroll taxes fund current beneficiaries. Redirecting these funds would create a gap, requiring increased borrowing or benefit reductions to pay today's beneficiaries. George's example focuses on a single worker, but real retirement planning often happens at the household level. Married households can receive two benefits, and spousal benefits are crucial for homemakers or those with insufficient work histories, potentially receiving up to 50% of a working spouse's benefit. Divorced spouses can also qualify. For a household with two working histories, benefits can be substantial. For example, two spouses each receiving $2,000 per month totals $4,000 per month, equivalent to generating income from a $1.2 million portfolio at a 4% withdrawal rate. A higher-earning couple receiving $6,500 per month would require a $2 million portfolio to replace that income. While investments offer growth, flexibility, and inheritability, Social Security provides guaranteed lifetime income that retirees are more willing to spend, improving their enjoyment of retirement. A strong retirement plan includes both. Finally, the speaker addresses George's label of Social Security as a "legalized Ponzi scheme." While acknowledging the analogy that current workers finance current beneficiaries and earlier earners received higher returns, the speaker firmly states Social Security is not a Ponzi scheme. A Ponzi scheme is fraud, involving lies about investments and fabricated returns, concealing that new money pays old investors, leading to eventual collapse. Social Security's financing is publicly disclosed, payroll tax revenue continues, and Congress can adjust taxes and benefits. It is a pay-as-you-go system, not a fraudulent investment scheme. While one can dislike its structure or argue about intergenerational returns, calling it a Ponzi scheme misrepresents its financing and purpose. Social Security's purpose is to provide a basic level of financial security, replacing a portion of income for retirees, and providing benefits for survivors and the disabled. It has been enormously successful in reducing poverty among older Americans. In 1959, 35% of Americans 65 and older were in poverty; today, it's around 10%. Without Social Security, an estimated 37.3% of older adults would have been below the poverty line in 2023, but after counting Social Security, the rate was 10.1%, lifting 16.3 million older Americans out of poverty. It provides dignity in retirement. In conclusion, Social Security needs reform, and private investing likely offers higher returns for many. George is right on these points. However, Social Security and an investment portfolio serve different purposes. A portfolio builds wealth and offers flexibility, while Social Security provides a dependable foundation of lifetime income and protects against risks before retirement. A good plan values both. The speaker reiterates agreement with George's message that individuals are their best shot at a great retirement, adding that Social Security is the foundation beneath that plan, not the entire plan. It needs reform, and changes should be anticipated, but low returns do not equate to worthlessness or disappearance.