Everyone has read the story that reassures today's retirees:“Your Social Security benefits aren't introuble.”

It claims that even after the Social Security trust funds run dry in 15-20years, the system will have enough money from pay-as-you-go taxcollections to fund about 80% of promised benefits.

With a few “tweaks,” such as a 2% increase in payroll taxes anda one-year delay in normal retirement age, everything will be finefor decades to come. Or so the story goes.

There are just a couple of problems.

First, the story is built on optimistic assumptions that mayneed revision as soon as the next recession hits.

Second, it's probably not going to be today's retirees whodecide when and how the Social Security system changes. It will beyounger people – mainly millennials – who finally say they have hadenough uncertainly and choose to opt out.

You can see the handwriting on the wall in the growing push togive participants in state defined-benefit (DB) pensions opt-out rights, in favor ofparticipating in a 401(k)-like defined contribution plan.

In Nevada, Republican legislators are pushing this option withthe endorsement of a leading newspaper, The Las Vegas Review-Journal.According to a recent editorial, the proposal “would simply givestate workers the choice of staying in the Public EmployeeRetirement System (PERS) or opting out to start their ownindividual accounts that would afford them more control over theirpersonal financial planning. Those who opted for the latter couldnot return to PERS.”

Opt-out proposals are gaining momentum because they are one ofthe few viable solutions to the increasingly desperate fundingcrisis in many public DB plans.

What is likely to happen when participants in a hugelyunder-funded DB plan have the ability to opt-out?

Younger people, who are farther away from retirement and morevulnerable to funding shortfalls, will opt-out in droves. Olderpeople will stay in, hoping the system can stay solvent long enoughto pay promised benefits.

However, for every young person who opts out, the system'sfunding becomes more rickety. Eventually, older participants willstart to lose confidence and opt-out, too, further undermining DBplan solvency.

Some public DB plans have horrible funding ratios, well below70%. But Social Security is in a cellar by itself in terms offunding adequacy. If Social Security were to use the same standardsas public DB plans, its funded ratio (trust fund assets divided bythe present value of future liabilities) would be less than10%.

Once Social Security approaches pay-as-you-go status (i.e., thetrust funds become empty), it will be hard to resist politicalpressures to give younger people an opt-out. After the firstmillion or so younger people have chosen to opt out of SocialSecurity, the system as we know it will be forever changed.

If your clients want to believe the good-news story about SocialSecurity, at least try to help them plan for a world in which theirretirement lifestyles don't totally depend on receiving 100% ofpromised Social Security benefits. One day, they may thankyou for it.