A shareholder once asked Warren Buffett and Charlie Munger if Social Security is a 'government-sponsored Ponzi scheme for retirees';  His response was met with laughter and applause.

A shareholder once asked Warren Buffett and Charlie Munger if Social Security is a ‘government-sponsored Ponzi scheme for retirees’; His response was met with laughter and applause.

Social Security has long been a topic of intense debate in the United States, but investing legend Warren Buffett’s position on the issue is unequivocally clear.

During the annual shareholder meeting of Buffett’s company, Berkshire Hathaway, in 2005, an audience member posed a blunt question: “I’m asking for your opinion on Social Security. Shall we call it the government-sponsored Ponzi scheme for retirees?

Buffett was the first to clarify the true nature of Social Security.

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He explained that while it was proposed as insurance because it was “the only way (President Franklin) Roosevelt could get it passed,” Social Security is essentially a “transfer payment from people who are in their productive years to people who are in their productive years.” beyond their productive years.”

And Buffett liked that mechanism.

“I think the obligation of people who are doing well in this society is to provide a reasonable level of support to those who are past their productive years,” he said.

‘One of the most successful things the government has ever done’

Buffett’s right-hand man, the late Charlie Munger, was an even bigger supporter of Social Security.

Despite calling himself a “right-wing Republican,” Munger staunchly defended the program. During that 2005 shareholder meeting, he said he felt more strongly than Buffett that Republicans who challenged Social Security were “crazy.”

His words were received with laughter and applause from the audience.

Munger was generous in praising the program.

“Social Security is a very capitalist institution with profoundly good effects,” he said. “It’s one of the most successful things the government has ever done in terms of efficiency and good effects.”

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Buffett’s recipe for Social Security

Buffett also shared with the audience what he would do if he were running the Social Security program.

He took issue with Social Security’s wage base, which is the maximum amount of income that is subject to the Social Security payroll tax in a given year. In 2005, the amount was set at $90,000.

“Right now we stopped taxing Social Security at $90,000. But, and that means everyone in my office is paying, or most of them, 12.4, 12.2 or 12.4 percent, counting what the company contributes, for this,” he said.

Buffett noted that because this payroll tax ceased to exist with incomes over $90,000, higher-income earners, including himself, pay a smaller proportion of their total income into Social Security. He criticized this as “a kind of nonsense in this society.”

Advocating for change, Buffett proposed a substantial increase in the Social Security wage base.

“I would raise $90,000. In fact, you could apply it to all income. Then you would really catch people’s attention,” she said.

Since his 2005 comments, the Social Security wage base has increased substantially. By 2024, it amounts to $168,600, an increase from the 2023 limit of $160,200.

Additionally, Buffett expressed support for raising the retirement age.

“It would certainly increase the retirement age,” he suggested. “I mean, the world of 2005 is very different from the world of 1937, in terms of prospects for longevity and ability to function productively.”

Buffett’s observations are well founded. When President Roosevelt signed the Social Security Act in 1935, life expectancy in the United States was only 59.9 years for men and 63.9 for women. Fast forward to today, and these numbers have increased to 74.8 for men and 80.2 for women.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

By Sam