Warren Buffet once called derivatives weapons of mass wealth destruction.  Of course this didn’t stop him from piling money into them.  Whenever you go to a casino, it seems like there is an overabundance of retirees gambling away their nest eggs (or social security).  Who wouldn’t?  If it is likely that you might die in the next few years, why not try one last time to hit the big one.  Apparently Buffet’s lifelong history of investment acumen couldn’t prevent him from taking a few last chance gambles.  Old people  and their money will soon be parted.

While I am on the subject of old people being parted from their money, I received my annual update from the Social Security Administration.  The following is the exact text of an article that was printed right in the middle of the front page:

Will Social Security still be around when I retire?

Yes.  The Social Security taxes you now pay go into the Social Security Trust Funds and are used to pay benefits to current beneficiaries.  The Social Security Board of Trustees now estimates that based on current law, in 2041, the Trust Funds will be depleted.  Because people are living longer and the birth rate is low, the ratio of workers to beneficiaries is falling.  Therefore, the taxes that are paid by workers will not be enough to pay the full benefit amounts scheduled.

However, this does not mean that Social Security benefit payments would disappear.  Even if modifications to the program are not made, there would still be enough funds in 2041 from taxes paid by workers to pay about $780 for every $1,000 in benefits scheduled.

In other words, every dollar that I sink into social security will decrease at a value of -.77% for 32 consecutive years to be worth .78 cents on the dollar when I retire.  I know that nowadays this sounds like a pretty good investment.  I would argue, however, that speculative bouts of mass wealth destruction are far lest damaging than systemic ones.  It seems that the Social Security Administration believes this as well.  If you read the back of the newsletter, it is filled with drivel about how I need to start saving and if I can save just $5 a week then it will grow at 5% and be worth a ton of money when I retire.  There is even a chart showing me that if I save $25 a week with 5% annual growth, then it will be worth $165K when I retire.  Cool, where can I sign up for option B.

Basically the geniuses who run Social Security are telling me that I must pay them and lose $.22 on every dollar after 32 years, but if I save money and invest it to where it grows at a 5% annual rate than the same dollar will be worth $4.78 in 32 years.  How is this any less fraudulent than anything Bernie Madoff did?  At least his investors willingly chose to contribute money to his scam.  I guess the difference is that at least the Social Security Administration is telling us that their operation is just a big scam, but since they are letting us know then it is o.k.