Ball State junior Kristen Ager has been working since she was in high school to save extra money, but she never thought she would be saving for her retirement fund.
"The way things are looking, it won't be around for me to receive when I retire," Ager said.
Workers in their mid-20s will not only be paying for benefits for social security recipients, they will also have to use their earnings to save for their own retirement, Cecil Bohanon, economics professor, said.
"Somebody, somewhere is going to be getting less and paying more," Bohanon said.
Social Security is a "pay-as-you-go" system for retirees or people on disability to receive benefits from the government based on how long they have worked and how much they have earned, he said. It is also adjusted to the cost of living and inflation and when the recipient dies, the payments are stopped.
"Your earnings today do not go into a fund for you," he said. "Your contribution goes directly to pay retirees."
Bohanon said even though young people are the "transitional generation," for Social Security reform, many are not concerned because it not immediately affect anyone until the distant future.
"It's difficult to worry about something that is 45 years away," he said.
People working now are financing the Social Security for retirees. He said this system works well as long as there are not many retirees, they don't live very long and as long as there are enough people working.
"If this could continue, the next generation will be taken care of, and they will take care of the next and so forth," he said.
However, the baby boomers of the 1950s will make up a large amount of retirees in the next few years. Also, people are living longer and want to retire early. He said there is an imbalance between the amount of people in the workforce compared to retirees. According to whitehouse.gov, in 1950, there were 16 workers supporting each Social Security recipient. Today, there are 3.3 workers supporting one beneficiary. When today's youngest workers turn 65, there will only be two workers supporting each recipient.
Bohanon, who supports privatization, said by 2018, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes. By 2041, when people who are currently in their 20s begin to retire, the government will have run out of funds to support the system.
"It's not the end of the world, but current benefits can't be promised to future retirees," he said.
Indiana ranks second in the nation for having the most reliance on Social Security payments for residents 65 and over in a study released by the Economic Policy Institute of Washington, D.C., and the Indiana Institute for Working Families. West Virginia leads at 73 percent and Indiana is tied with Michigan for second.
"This money comes into the Indiana economy by Social Security payment," Charles Warren, research manager for the Indiana institute, said. "The money not only has a critical economic impact on individuals, but on the state as a whole."
Seventy-one percent of Indiana senior citizens depend on the payments for more than half of their total income, Warren said. The average share of income from Social Security is 73 percent of their total income. The national average is 67 percent. He said in 2002, Social Security contributed $10.4 billion to the economy.
"President Bush has said those 55 and older shouldn't worry about the changes in the Social Security system," Warren said. "However, he won't be president in a few years."
President Bush is proposing a plan to reform the current Social Security system and allow workers to voluntarily place their money into privatized retirement funds. This method is supposed to offer a better chance of financial return for the recipient than the current system.
"If the pay-as-you-go system is phased out, young people will be forced to save and not rely on future payments of workers," Bohanon said.
He said the funds may be put in the form of a 401k or an index fund. A 401k allows people to save for their retirement while postponing any immediate income taxes on the money saved or their earnings until withdrawn, he said. An index fund is a small investment in each stock being traded on the market.
With this reform, young people who annually earn $35,000 over their career could save almost $250,000 in their own account for retirement, according to whitehouse.gov.
Bohanon said the information is available, but students need to understand what this means in the long run.
"It's up to young people to do the work to find out how privatization will affect them," he said.
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