In U.S. we trust?

Social Security (SS) is a mandated supplemental retirement system (plus other benefits) set up to ensure that no one falls through the cracks. Benefits are paid based on a sliding scale depending on your income, how long you work, and at what age you retire.

Pay-as-you-go.

Technically, Social Security (along with Medicare) is not a fund but a “pay-as-you-go” program. That is, a certain percentage of your paycheck goes directly to providing benefits for those who have already reached retirement age. Similarly, when you retire, the workers of that time will fund your payments. This ingenious scheme was designed to prevent future politicians from fingering the fund.

Today, SS provides a bare bones level of income—the average payment is $12,000 a year—to any worker who had paid into the program. Social Security is funded by payroll taxes, collected by your employer. When you get your first “real” job, look for the hefty chunk of change labeled FICA/Medicare on the deductions side of your pay stub. Thank you for your donation.

Here’s the rub.

Um, we have a problem, Houston. Although currently solvent, Social Security has promised future generations far more in retirement benefits than its current funding sources will allow it to pay. Worse yet, the government has borrowed money from SS to support other program obligations. These IOUs are coming due and that spells trouble for Gen NeXt.

The bad news is spelled out in Global Aging 2013: Rising To The Challenge, a report released by Standard and Poor’s, a rating agency. The number of old coots (that’s Baby Boomers) drawing benefits is going up, while the number of young coots (that’s you) paying for those benefits is going down. Left unchecked, government benefits for retirees are estimated to rise from 9 percent of national income in 2005 to 21 percent by 2050.

The sad reality is many people fail to provide enough for their old age retirement and healthcare. Nearly one in three of today’s seniors depend on the Bank of Uncle Sam for more than 90 percent of their income. And, as aging Boomers retire to the tune of 10,000 per day over the next two decades, their problem will become your problem.

What me worry?

NeXters are starting to smell the java. According to Millennials in Adulthood, a survey report by Pew Research Center (2014), fully half of Millennials (51%) say they do not believe there will be any money for them in the Social Security system by the time they are ready to retire. An additional 39% say the system will only be able to provide them with retirement benefits at reduced levels. Just 6% expect to receive Social Security benefits at levels enjoyed by current retirees.

That leaves young persons with two other options in retirement. If you are rich (and most of you won’t be), you’ll have private savings. For ordinary folks who don’t own a hedge-fund account, there are pensions and 401(k)s. But pensions are disappearing faster than your dad’s hairline, so that leaves 401(k)s. Fail to secure a good job though and it can take decades for your 401(k) to make up for lost earnings, if ever.

Welcome to the middle class treadmill.