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You worked hard your whole life and paid thousands of dollars in Social Security taxes. Now it's time to retire. You're legally entitled to Social Security benefits, right? Wrong. There is no legal right to Social Security, and that is one of the considerations that may decide the coming debate over Social Security reform.
Many people believe that Social Security is an "earned right." That is, they think that because they have paid Social Security taxes, they are entitled to receive Social Security benefits. The government encourages that belief by referring to Social Security taxes as "contributions," as in the Federal Insurance Contribution Act. However, in the 1960 case of Fleming v. Nestor, the U.S. Supreme Court ruled that workers have no legally binding contractual rights to their Social Security benefits, and that those benefits can be cut or even eliminated at any time.
Legitimate investment vehicles take investor funds and invest them in businesses, real estate, and other assets. These investments are intend to generate returns for shareholders. Madoff didn't do this. He paid off early investors with cash from subsequent investors. Investment assets were never purchased.
Similarly, Social Security has no investments. It pays retirees benefits with cash deposited by younger workers. What’s worse is that Social Security has taken in a surplus of funds over the years. Instead of investing the extra funds legitimately, the government spent it on other programs. Now Social Security is completely unfunded -- something that's illegal for companies to do but not the government.