How to Prepare for the End of Social Security

Younger workers need to gear up for a reduction in benefits.

Uncle Sam opens up his wallet, but it is empty.
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With the recent government announcement that the Social Security trust fund is set to run out in 2037, four years earlier than previous estimates, many young workers are asking themselves: Why am I paying into a system that might not be there for me when I retire?

"It seems unfair," says Kouri Marshall, chairman of the board of governors for the Youth Entitlement Summit, which advocates more youth participation in public policy. "We have a Social Security system that was built upon us having a certain number of people employed in this country."

Indeed, the entire premise of the Social Security system is that Americans will continue to innovate and the economy will grow so that the current generation of workers will be able to fund current retirees' benefits. But because of shifting demographics and the added stress of the recession, when the baby boomers begin to retire in 2016, the benefits being paid out will start to exceed the amount being taken in. After the trust fund is depleted in 2037, beneficiaries will be able to receive only what current workers are paying in, which will be about three quarters of the scheduled benefits, unless changes are made.

[For more, read: "Quiz: Do You Understand Social Security?"]

"It's very much a Ponzi scheme where the next generation will get stuck holding the bag," says Laurence Kotlikoff, author of The Coming Generational Storm and a longtime advocate of reform. "We have a huge generational imbalance."

The justice of the situation is up for debate. David Walker, former U.S. comptroller general, says that Social Security was never designed to be a quid-pro-quo system. It was designed to provide extra income to lower-income groups at the expense of those with higher incomes, so analyzing the rate of return for current workers doesn't make much sense, he says. "I hear young people saying, 'I'm not getting a good deal.' That's technically right, but it doesn't reflect the nature of what Social Security is," he explains.

Besides, while workers in their 20s and 30s may not get a full return on their payments, they do benefit from older workers' and retirees' innovations, says Bernard Wasow, senior fellow and economist at the Century Foundation. "The premise that there shouldn't be any transfer between generations doesn't make much sense. All the inventions, improvements, and technology that my generation generates will be passed on to my kids," he says. Plus, he adds, retirees often face poverty and need the financial support. "We can't just tell old people they should have saved more and should sleep under bridges," he says.

With people in their 50s and 60s getting ready to retire just as the stock market has taken a big hit, plenty of workers in their 20s and 30s are just as concerned about their parents' financial well-being as their own. "I don't think, 'Grandpa's getting this much and I'm getting this much, and that's not fair,' " says Anya Kamenetz, author of Generation Debt: Why Now Is a Terrible Time to Be Young. "My worry is, how do you get benefits to people who need it? That's the bigger issue. I have parents who are turning 60 soon, and they'll be relying on 401(k)s that aren't as strong, so I want to know the [Social Security] benefits are there."

The baby boom generation "has seen much of its retirement savings wiped out at a point when it's too late for many to recover. So the new context is, the elderly are going to be the fastest-growing poverty group in the United States...so we're going to have to spend a lot of money on the elderly," says Phillip Longman, author of Born to Pay: The New Politics of Aging in America and a senior fellow at the New America Foundation.

[For more, read: "David Walker Explains Social Security's Future."]

For Thierry Dongala, vice president at Americans for Generational Equity, a youth advocacy group, the main concern is getting younger people a voice in the debate over public policies such as Social Security and Medicare. "Young Americans are becoming a minority as a group. So it's not a civil rights issue in the traditional form, but it is because we are now a minority who is being asked to foot the bill for the majority," he says. "It's not like we want to create generational conflict, but what we are asking is, 'Let's have a seat at the table.' "