Social Security's Ponzi Problem

 Every few years, somebody declares that Social Security is a Ponzi scheme. Indeed, I’ve been known to draw that inelegant comparison myself.

The “scheme” that gave rise to the label was crafted by Charles Ponzi in the 1920s. He promised investors outsized returns — famously, doubling their money in 90 days. There actually was an arbitrage opportunity behind the pitch,[i] but demand quickly overwhelmed it. So Ponzi wound up using money from new investors to produce the “returns” promised to earlier ones.

Social Security operates somewhat similarly: current payroll tax contributions are largely used to pay current beneficiaries. For decades, revenues exceeded benefit payments, with the surplus accumulating in the Social Security trust funds. But demographics, benefits and eligibility have changed — and the cushion between what comes in and what goes out has steadily eroded. Under current projections, within the next decade there won’t be enough incoming revenue and accumulated reserves to pay the full benefits currently scheduled under law.

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So, yes, it can look a lot like a Ponzi scheme.

Purists rightly point out the differences; there is no investment fund, no individual account into which your withholdings are invested, and no promised “return” on those contributions. And unlike Ponzi, Social Security doesn’t have to continually recruit new investors; the federal government can mandate the collection of payroll taxes.

Still, if you’re a young worker watching a significant portion of your paycheck go to finance benefits for people who have already retired — or an older worker who has paid those taxes for decades only to hear now that the benefit formula might change just when you’re depending on it — it’s not hard to understand why the comparison persists.

The problem is that calling it a “Ponzi scheme” also carries a moral judgment, suggesting that someone perpetrated a criminal deception that can — and should — simply be undone.

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Let’s be honest. Social Security has changed substantially since it was enacted in 1935. Benefits didn’t begin until 1940. The original retirement age was 65, at a time when life expectancy at birth was roughly 61 for men and 66 for women. Spousal benefits came in 1939, disability benefits in the 1950s, and automatic cost-of-living adjustments not until 1972. The 1983 reforms raised the retirement age gradually and made some benefits taxable under certain circumstances, among other changes.

In other words, the “promised” benefit has never been quite as immutable as the rhetoric sometimes suggests. The problem is that politicians have generally found it easier to expand benefits than reduce them.

And now the math — the assumptions and compromises underlying the 1983 reforms — has caught up with us.

So the question isn’t whether Social Security is a Ponzi scheme. It’s what new variables we’re willing to introduce into the equation: More revenue? Lower benefits? Changes to the benefit formula? A higher taxable wage base? Some combination of those — or something else entirely?

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It’s encouraging to see members of Congress[ii] finally giving more attention to the problem, particularly as we approach the point where — absent legislative action — trust fund depletion would leave incoming revenues sufficient to pay only a portion of scheduled benefits.

But as Congress considers options, the questions worth asking aren’t whether Social Security was a “scheme,” or a “scam,” or who is to blame.

They’re much harder:

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What did we promise — and why? What can we afford — or afford not to do? How much are we willing to change — to today's workers, today's retirees, and tomorrow's retirees — to make the system work? And what does the system “working” actually mean?

Unlike the “Is Social Security a Ponzi scheme?” question, those are questions we actually need to answer.

And soon.

— Nevin E. Adams, JD

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[i] The basic story was that postal reply coupons could supposedly be bought cheaply in one country and redeemed for a higher value of U.S. postage stamps in another because of exchange-rate differences following World War I.

[ii] See Senators Introduce Bill to Kickstart Social Security Reform Process

A ‘No Regrets’ Retirement

  A recent survey of retirees found the usual litany of regrets — but I think you could sum it all up in one key point.

They didn’t have a crystal ball.

Oh, not that they characterized it as such. Topping their list were the usual suspects — not saving enough or not starting to save sooner — but nearly half also regretted not having clear retirement goals, underestimating health care and long-term care costs, and not planning for life's inevitable surprises.

Not that there’s any sense that these unknowns have actually occurred — more so that as one gets older, the likelihood of those uncertainties becomes — well, more likely. And with less time to arrange contingencies. Or maybe you just have more time to think about it.

But having read these types of surveys over the years, I can’t help but wonder if sharing those post-retirement perspectives serves to motivate any pre-retirement behaviors.

My guess is — not.

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For one thing, much of this advice is based on hindsight. It's hard to prepare for something you haven't experienced, particularly when the "something" is different for nearly everyone. Healthcare costs? Maybe. Long-term care? Perhaps. An unexpected late career layoff? Becoming a caregiver? A market downturn just before retirement? None of us knows which surprises we'll get. And most of us seem to think those things happen to someone else. Until, of course, it doesn’t.

Regret ‘Able?’

Which is why I think many of these "regrets" are really just lessons that could only have been learned after retirement — and I've now been retired long enough to have a perspective on that.

And, somewhat to my surprise, I don't have many regrets.

That doesn't mean everything went exactly according to plan. It certainly didn't. Yes, I had a number in mind (though it changed over the years). Yes, I (mostly my wife) did a thorough analysis of likely retirement expenses (those are a lot easier to do close to retirement, btw). And yes, part of that math was establishing a reliable retirement income base as a foundation.

I’m not saying there aren’t regrets in retirement. For some, it comes too soon — for others not soon enough. And while “the math” is an essential element in achieving a comfortable retirement, it’s really just part of the overall equation when it comes to figuring out the when and how.  

The Three C’s

Looking back, I realized my retirement decision really came down to what I've come to think of as my "Three C's."

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The first was the calendar. After more than four decades writing about retirement plans and retirement policy, I had reached a point where retirement wasn't some distant concept. Let’s face it, for all the talk of “never” retiring, when you get to a certain age — well, you realize you’re old enough with timing “validated” by hitting Social Security’s full retirement age.

The second was the commute. It hadn't gotten any longer, but it had certainly become more tiresome (particularly after the extended COVID non-commute). At some point, I found myself wondering whether I really wanted to keep spending that much of every day getting somewhere, instead of being somewhere.

The third C was one none of us saw coming.

COVID.

Like millions of others, overnight I suddenly found myself working from home — all the time. Not that I haven’t worked from home before — but this, of course, was different. More importantly, there’s something about a worldwide pandemic that brings one’s own mortality into focus.

What began as a public health necessity became, in retrospect, a dress rehearsal for retirement. Could I stay home all day? Could I establish a routine without an office? Would I miss the structure and social aspects of work?

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Could my wife stand having me around that much?

As it turned out, I liked it more than I expected (as did my wife — whew!).

Which brings me to something else I've noticed; a great deal of retirement advice comes from people who have never actually — well, retired.

That's not meant as a criticism. Financial professionals understand investing. Benefits professionals understand retirement plans. Researchers understand data. Lifestyle coaches — well, they understand people (or claim to). They all have valuable perspectives — but they’re often siloed.

Retirement Realities

Retirement itself has a way of teaching lessons that don't always appear in Monte Carlo simulations or replacement-ratio calculations. Human beings don’t always act (or feel) the way “rational” models predict.

Yes, there were things I wish I had understood sooner. Taxes don't retire when you do. Medicare is more complicated than it first appears. Roth conversions become much more “interesting” once you're no longer earning a paycheck.

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But perhaps that's the distinction these “regrets” surveys miss, though I get the hope that chronicling lifestyle regrets will spur positive action (but just ask any parent how that works with your kids).

If I could offer one piece of advice to those approaching retirement, it wouldn't be to obsess over every possible thing that might go wrong.

It would be to recognize that retirement probably won't be exactly the way you imagine — and that’s not necessarily a bad thing.

After spending most of my career writing about retirement, I’ve finally had the opportunity to experience it — at least the start of it. Despite all the years I'd spent writing about retirement, if I had one regret — it might simply be that I underestimated the retirement experience itself.

And, like most things in life, along the way I discovered there were things about retirement you can only learn by “doing” it.

No crystal ball required.

• Nevin E. Adams, JD

Is It Convergence — or a Combination?

 If I had a dollar for every time I've heard the word "convergence" over the past year . . . well, I'd probably have enough to fund a managed account. Maybe two.

Retirement advisors are becoming wealth advisors. Wealth advisors are moving into retirement plans. Recordkeepers are evolving into workplace financial platforms. Everybody, it seems, wants to “own” the participant relationship.

Though, come to think of it, this isn't the first time we've heard this tune. In fact, every decade seems to produce a new prediction that the walls separating financial services are finally coming down.

This time, though, the argument feels different.

My buddy Fred Barstein has been one of the industry's most vocal advocates, arguing that convergence between retirement and wealth management isn't something on the horizon — it's already reshaping the business.

And to be fair, the evidence has become considerably stronger of late.

Consider the recordkeeping business. A recent McKinsey report estimates that recordkeepers generated roughly $45 billion in retail wealth revenue in 2023, compared with only about $13 billion from traditional recordkeeping. That's not a subtle shift. It suggests that, for many firms, recordkeeping has become the platform while wealth has become the growth engine. 

Then again, that's not entirely new. One could argue that firms like Fidelity entered the recordkeeping business in the first place because they saw retirement plans as distribution platforms for investment products. Over time, however, many providers discovered that converting recordkeeping relationships into asset management relationships proved more difficult than expected.

That said, according to NMG Consulting, roughly 70% of retirement plan advisory firms are looking to expand beyond their traditional retirement practices, primarily into wealth management and insurance. Major firms like CAPTRUST, HUB International, OneDigital, and Creative Planning have all invested heavily in building businesses that span both worlds. Wealth firms increasingly view the workplace as their next client acquisition channel, while retirement firms increasingly see participant relationships as the logical extension of their advisory model.

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Viewed from 30,000 feet, it certainly looks like a “convergence.”

But wait a minute. Before deciding whether convergence has arrived, shouldn't we first agree on what "convergence" actually means? 

It seems to me there are at least three different kinds of convergence taking place.

1. The first is recordkeeper convergence.

This one is difficult to dispute. Large recordkeepers increasingly see themselves less as administrators and more as holistic workplace financial platforms — offering managed accounts, financial wellness, retirement income, emergency savings, banking products, HSAs, and advice. Now, whether participants fully embrace those services is another matter, but the business strategy is unmistakable. 

It’s also not exactly new as an expansion aspiration. People have been talking about this since the 1990s.

2. The second is business model convergence.

This is where firms acquire capabilities outside their historical expertise. CAPTRUST buys wealth firms. Creative Planning buys retirement firms. HUB and OneDigital assemble both under the same corporate umbrella.

Again, the evidence is compelling.

3. But the third type — professional convergence — is where I remain unconvinced.

Buying a wealth practice doesn't necessarily transform retirement consultants into wealth advisors. Buying a retirement practice doesn't automatically make wealth advisors experts in fiduciary governance, committee processes, plan design, or ERISA litigation risk. We’ve seen this tried — with mixed results — before. Though it may create — from an external perspective, anyway — what reads like a diversified financial services company. 

Which brings me to my original question — is this truly a “convergence?”

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Or is it simply a combination?

The retirement business remains institutional, process-driven, committee-oriented, and fiduciary-centered, while wealth management remains personal, behavioral, relationship-driven, and household-focused.

Those aren't merely adjacent businesses. They require different expertise, different operating models, and often different personalities.

Which brings me back to the data.

Fred points to enormous wealth opportunities: roughly $74 trillion in wealth assets, compared with about $14 trillion in defined contribution plans. Approximately $1 trillion rolls out of retirement plans each year. Wealth management fees are many times higher than retirement plan advisory fees — and the margins tend to be better as well. The economic incentive at a firm level is undeniable.

He also cites recent Fuse research showing that wealth advisors who manage retirement plans convert about 6% of participants into wealth clients. The largest firms reportedly convert closer to 17%, and more than a third say retirement plans are a more effective source of new clients than traditional prospecting.

Given the size of many retirement plans and the amount of outside wealth participants increasingly command, converting six participants out of every 100 can generate significant assets and recurring revenue.

But 6% is also...well, “just” 6%.

It means 94% of participants AREN’T becoming wealth clients. At least not yet.

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Let’s be honest; if only 6% of participants used a financial wellness program, we'd probably describe adoption as “modest,” if not “limited” — or “early days.” If only 6% elected a retirement income solution, we'd say the market was still developing. Indeed, we have.

Yet when the subject is wealth management, some have tended to interpret the same number as proof that convergence has “arrived.”

I'm not sure that conclusion follows.

To me, the Fuse research demonstrates that retirement plans have become an effective client acquisition platform for wealth advisors — and it may well have opened the door for an expansion of the participant relationship for retirement advisors — but it's not necessarily the same thing as proving that the retirement and wealth professions have “converged.”

If “convergence” means retirement consulting and wealth management have become an integrated profession with interchangeable skills, business models, and client relationships, I think the evidence is still mixed. 

Honestly — and I know some will disagree — I'm not even sure they should.

The retirement business isn't simply wealth management with smaller accounts. It has its own fiduciary framework, governance structure, regulatory obligations, and institutional perspective. Those differences exist for good reasons.

Indeed, to me right now this “convergence” feels less like an accomplished fact than an industry aspiration — one driven by powerful economics, undeniable strategic momentum, and, perhaps, just a bit of wishful thinking. And, I have to say, not a new one.

“Convergence” to me is all about “us.” 

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Maybe that's the real convergence.

Not retirement advisors becoming wealth advisors.

Not wealth advisors becoming retirement advisors.

But finally recognizing that participants never divided their financial lives into those categories in the first place. The industry created the silos.

Participants never did.

Perhaps the best evidence isn't that retirement and wealth have become the same business.

It's that both have finally discovered the same customer.

And maybe that's “convergence” enough — for now, anyway.

• Nevin E. Adams, JD

‘Living’ Proofs

In a calendar already chock full of special days and commemorative months, next week we’ll add another: Women’s Retirement Security Day.

If this one has snuck up on you — well, it’s a first. July 14 this year, the second Tuesday in July thereafter. A national day of action dedicated to raising awareness, sharing resources, and improving retirement outcomes for women.

And that’s the key — not a day of remembrance, a day for action.

For much of this country’s history, women were largely expected to derive retirement security through someone else’s employment — a husband’s pension, survivor benefits, or eventually Social Security spousal benefits. The retirement system itself was largely designed around a traditional, uninterrupted male career model: one worker, one employer, one pension, one primary breadwinner.

But many women’s lives — including my mother’s — never really fit that model.

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Mom, a schoolteacher, had a career of her own, but took a fairly significant (and unpaid) “sabbatical” so that she could stay at home with her four kids until the youngest was ready to head off to school. When she returned to work, she was covered by a state pension plan, albeit one that required from her paycheck a much more significant contribution than most defer into 401(k)s.

On top of that she saved diligently to buy back the service credits she had forgone during the years she worked in our home without a paycheck — and then set aside money in her 403(b) account (over Dad’s objections, I might add — he didn’t think they could afford it).

Indeed, generally speaking, women face many more challenges regarding retirement preparation than men. They live longer (and thus are likely to have longer retirements to fund), tend to have less saved for retirement (because of lower incomes and more workforce interruptions), and in addition to longer retirements, those longer lives mean they are also more likely to face what can be the catastrophic financial burden of long-term care expenses.

And their caregiving responsibilities often extend to aging parents, even after their own children have left the “nest.”

Women are also less likely to work for an employer that offers a retirement plan at work, and more likely to work part time — which historically has often meant being excluded from plan participation altogether. Only about 1 in 3 women use a professional financial advisor to help manage retirement savings and investments.[i]

Oh, and like my mother, they tend to outlive their spouses — often by far more than the variance in average life expectancy tables might suggest.

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Let’s face it, one of the enduring realities for many women is that the very responsibilities that strengthen families can weaken long-term financial security. Women remain more likely to interrupt careers, reduce hours, or work part time because of caregiving responsibilities — decisions that can ripple through retirement outcomes for decades.

The “magic” of compounding only works when there is something to compound.

Retirement preparedness isn’t merely about accumulating assets. It’s about preserving dignity, independence, and choice.

For everyone.

That’s what the inaugural Women’s Retirement Security Day should remind us.

Not simply that women face different retirement challenges — though they clearly do.

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But that a retirement system designed around real life needs to consider the people who actually live it.

Once again, though — this is not a day for flowers, cards, and social media posts. This is a day for action.

Let’s get to it.

• Nevin E. Adams, JD

More information is available at: https://www.usaretirement.org/get-involved/wir/womens-retirement-security-day/

[i] See 25 Facts About Women's Retirement Outlook | 25th Annual Transamerica Retirement Survey 2025.