I hate how people have latched onto using the term "entitlements" to discuss Social Security and Medicare and always say/write it as if it's a bad thing.

Social Security and Medicare are earned benefits. People pay into the system through payroll taxes so that they receive a benefit based on the length of time they paid into the system and their salary. Much like a 401k or an IRA, the money is invested (albeit in government debt at low interest rates), and even now (well, maybe not with that idiotic payroll tax break they enacted) more money is going in than coming out.

I think that's closer to being true for Social Security than Medicare. In particular, stuff like Medicare Part D is providing very expensive benefits for baby boomers which wasn't part of the original understanding of what they were paying for (and they haven't retroactively kicked in higher payroll taxes to make up for the cost).

I meant 'entitlement' as a value-neutral term as a legal program. Looking into it a bit more, Social Security may not fit the definition precisely, but I still did not intend for "entitlement" to be a negative. I'll keep that in mind before I use the term again.

However, Social Security is most definitely not like a 401k, IRA, or annuity, as Supreme Court cases have firmly established. Not only can you be denied payment, you're not guaranteed to out what you put in, and may very well pull out more than you put in. It's "insurance" and not a retirement account.

> Social Security and Medicare are earned benefits.

"Earned" maybe, but the relevant question is the relationship between the payments and the benefits. For some folks, it's a good/great return. For others, it's a lousy return.

> the money is invested (albeit in government debt at low interest rates), and even now (well, maybe not with that idiotic payroll tax break they enacted) more money is going in than coming out.

The problem is that current cash flow isn't the right way to determine whether such schemes are economically sound.

For example, Ponzi schemes have good cash flow initially.

The right way involves balancing the current "contributions" against the NPV of the benefits "promised".

No, I'm not saying that SS is a Ponzi scheme. No one is forced to participate in a Ponzi scheme and the only folks who lose money in a Ponzi scheme are folks who bought into the promise.

"The beauty of social insurance is that it is actually unsound. Everyone who reaches retirement age is given benefit privelleges that far exceed anything he has paid in...How is it possible? It stems from the fact that the national product is growing at compound interest ... More important, with real incomes going up at some 3% per year, the taxable base on which ebenfits rest in any period are much greater than the taxes paid historically by the generation now retired.

Social security is squarely based on what has been called the eighth wonder of the world--compound interest. A growing nation is the greatest Ponzi game ever contrived."-- Paul Samuelson

Except that demographics change. We've known that the demograhics were going to make SS untenable for decades.

> Everyone who reaches retirement age is given benefit privelleges that far exceed anything he has paid in

That's not actually true of folks who max.

Although I haven't read it, Albert Brooks' new novel seems to be about this very thing: http://en.wikipedia.org/wiki/2030_%28novel%29

Cancer has been cured and the younger generations increasingly feel resentment towards the "olds" that they have to support. He really isn't that far off considering how large the Baby Boomer generation is that are retiring everyday.

Since the beginning of the United States, every next generation has lived more comfortably than the last, until now. And the young people are realizing this.