(MONEY Magazine) – The loudest voices in the Social Security debate, inevitably, are those of seniors. But let's be honest. This is not about them. It's not about old people at all.

It's about families like Susan Stoga and Bob Ben of Barrington, Ill., both 40, and their kids Matthew, 5, and Caroline, 8 months. Anyone over 55 will almost certainly continue under the current system, and for them nothing will change. But for the Bens, a lot is at stake. The children could well spend their working lives under whatever program emerges in the next few years. Susan and Bob, meanwhile, could wind up claiming benefits under a system far different from the one into which they've already paid at least $200,000 in taxes. Susan, who owns a marketing communications firm, says she has doubts about whether she and Bob will collect much of anything. But Bob, a corporate controller, scrutinizes those statements the Social Security Administration sends him in the mail and expects to get what he's owed. "Social Security won't be our main source of retirement income, but it will be a good chunk of it," says Bob. "It needs to be there."

In his State of the Union address in February, President George W. Bush launched a furious debate--and opened what may be the single most important political question for your financial future. Bush portrayed Social Security as a Depression-era relic doomed to bankruptcy and in need of a rethink. His proposal: to retool the system around personal savings accounts in which you could invest up to nearly a third of your Social Security taxes in stock and bond funds. Practically before the words faded off his Teleprompter, however, Democrats were denying that the system needed anything more than minor adjustments and were dismissing personal accounts as an unwise and unwarranted gamble. The two sides might have been describing totally different programs.

Don't expect the debate to get any less partisan--or any less bewildering. On the pages that follow, we'll try to sweep away some of the confusion and lay out in a nontechnical (and nonhysterical) way the issues at the heart of this fight. And we'll try to make it clear why every family needs to understand these points about Social Security's future.

• There is no silver bullet. Social Security's problem boils down to this: Too few young people, too many old. By 2050, there will be only two workers paying taxes for each beneficiary, compared with three now and 16 in 1950. Whatever the virtues of private accounts, there is no ultimate fix without a cut in benefits or a hike in taxes or both. Period.

• The debate is really about who pays the bill. Countless combinations of taxes and/or benefit cuts (some radical, some not) could make Social Security's finances add up. The hard part isn't the math, it's deciding who makes what sacrifices.

• Fixing Social Security solves only part of the problem. However we deal with Social Security, we still have a demographic challenge. Making sure we have enough to go around in the future is at least as important as making Social Security's numbers add up.

Now let's turn to those big questions about the system's future.

The big fiscal question:

If there's one thing the President has never wavered on, it's that Social Security is going to hit the wall soon--2018, to be exact, about 10 years into the baby boomers' retirement. At that point the system starts to shell out more than it takes in, and by 2027 the red ink will come to $200 billion a year. But Democrats respond that even then the system should be able to pay full benefits until 2042 or beyond. To understand how they can say that, you need to come to terms with the beast known as the Social Security trust fund--a leviathan-size stash that, depending on whom you ask, is either a preposterous myth or as solid as the U.S. Treasury.

Social Security works primarily on a "pay as you go" basis. Your payroll taxes pay your parents' benefits now, and your kids' payroll taxes will fund yours. Since the 1980s, however, the system has raised a bit more in taxes than it paid in benefits. What happened to the surplus? The government spent it on B-1s, highways, MRIs for Medicare patients--the usual stuff of governing, in other words--and promised to pay the money back with interest one day. The sum of all that money, currently $1.5 trillion, is the Social Security trust fund.

So as long as the government makes good on the loan, Social Security can still pay full benefits without a hitch after 2018. Let's consider that statement though. It's the government--that is, we--that would pay back the trust fund. And how would the government--that is, we--do that? "We'd have to raise income taxes or borrow," says economist Eric Engen of the conservative American Enterprise Institute. "These are exactly the same choices we'd face if we didn't have a trust fund." And remember: These costs would spill into a federal budget that is already strained by the boomers' Medicare costs and the legacy of our $400 billion annual budget deficits.

Defenders of the current system counter: If the problem is that the government might have a hard time paying back what it's borrowed, why should Social Security alone take the hit? Why not reconsider all of the choices we've made that put pressure on future budgets? Like Bush's tax cuts for the well-off. Or farm subsidies. Or [your pet peeve here].

You can argue it round or you can argue it square. The dilemma of the trust fund is that it hinges on what everyone else thinks about it. If you believe that future taxpayers and politicians will take the trust fund seriously, then Social Security can keep going for decades. If you don't believe that, then it would be prudent to act sooner to bring revenue gradually back into line with benefits, by hiking up taxes or cutting benefits. That may be less painful than waiting until taxpayers really start feeling the pinch.

The big political question:

The President, obviously, is among those who put little faith in the trust fund, and his preferred tool for balancing Social Security's books is the benefit cut. He has promised he won't hike the payroll-tax rate above the 6.2% that you and your employer each chip in today. He has indicated that he might make more of your wages subject to Social Security taxes, instead of exempting income above $90,000 as the law does now. (This actually is a payroll-tax hike, but let's not quibble.)

The President so far has avoided getting specific on the cuts he'd make--that's politics--but he has many options. He could, for example, raise the retirement age or cut benefits for the highest earners. But it's also possible to slash benefits by making an arcane adjustment to the benefit formula: linking the growth of future benefits to the rise in consumer prices. Right now the amount of your initial Social Security benefit is indexed to the general level of wages in the work force. Since wages in our economy generally rise faster than prices, changing the formula in this way amounts to huge savings over time--enough to bring the system into balance over 75 years. The downside: Future retirees get a similar benefit to the one paid out today, after adjusting for inflation, but they will likely be living in a different, richer world. They could find it harder to maintain their standard of living. Because of hints dropped by the White House, Social Security experts believe that a final Republican-backed plan will likely include some price indexing.

So how might the numbers add up for a family like the Bens? This is contentious. The White House hasn't released any figures, and spokeswoman Cathie Martin says, "It is premature to run numbers on a comprehensive reform plan that has yet to be formed." It's a fair point: No one knows how Congress might try to cut benefits, and even price indexing could be modified to make its effect less harsh. MONEY looked at several sets of outside projections and settled on calculations made by New York University's Jason Furman as the most complete and reasonable approach. You'll want to bear in mind that Furman is connected with a liberal think tank and worked for the Kerry campaign.

Under one form of price indexing, a top earner retiring in 2030 at age 65, when the Bens would be ready, would get an annual basic benefit about 15% smaller than what's promised under current law. Such a formula would cut even deeper for the Bens' kids. Let's say they turn out to be above-average earners but don't do as well as their parents, who make six figures apiece. A 65-year-old clocking off in 2065, when Matthew Ben might, would get 42% less a year than the system is now supposed to pay.

Right now you may be thinking, if all Bush wants to do is slash future benefits, he doesn't have much of a plan. That's why the President sweetens the deal with those personal accounts.

First a word on what the accounts don't do. Even Republicans admit that they don't solve the fiscal problem, at least not by themselves. The reason is simple. The payroll taxes you divert to an account can't be used to pay benefits to current retirees. (It's a pay-as-you-go system, remember.) If personal accounts were to become law, in fact, the government would have to find a way to make up for the money going into them--and we're talking trillions. It's one reason Democrats say Bush's plan will never fly.

But the accounts do help sell the plan to voters by offering them a shot at earning back some of the money that benefit cuts whittle away. "Some" being the operative word here. In Bush's proposal, you'd be able to put 4% of income, up to $1,000 at first, into an account. But your potential gain is held back by a provision called the benefit offset (see the chart), which is designed to keep personal accounts from driving the system even further into the red. Every dollar you divert from the system reduces the benefit you're owed by a dollar--plus 3% over inflation per year. (The 3% return represents what your payroll taxes might have earned had you left them in the system.) So if your investments earn 3% a year after inflation, the offset will reduce your remaining benefit by roughly the same amount--a wash. To come out ahead, your personal account has to earn more than the offset takes away. This isn't a particularly high hurdle, but you'll have to take some risk if you want to clear it by much.

Let's say you make an annualized 4.6% after inflation on your personal account. That's the number the Social Security Administration has figured is reasonable for an account split fifty-fifty between stocks and bonds. According to Furman's figures, the Bens and their kids still wouldn't earn enough to make up for price indexing's benefit cuts. (See the table on page 153 and the one below.)

But the benchmark here so far has been scheduled benefits. Matthew and Caroline, who retire after Social Security's trust fund is expected to be empty, can't count on that promise. "The account allows you to beat what will be payable," says economist Jeffrey Brown, who worked for an earlier Bush reform commission. For the President's vision to take hold, voters have to believe that the benefits promised today are unsustainably high. That's one reason Bush is eager to paint the system as being in fiscal crisis--and why such talk drives Democrats batty.

The big moral question:

Remember that cutting benefits is only one way to fix the system. Solutions that rely on tax hikes--two or three more points in payroll tax, plus a higher wage limit--would require minor benefit cuts. So what you need to ask when you weigh any plan is who pays and whether that's fair. It may sound simple, but in Social Security, simple questions don't stay that way for long. Among the issues to consider:

• Are we being fair to the less affluent? There's no getting around this: Reducing benefits means that some future seniors are more likely to end up broke. This is a particular issue for low-income workers, who in a lot of hidden ways don't get a fair shake on retirement. They do get a higher payout from Social Security compared with their earnings, but other tax-subsidized retirement saving programs, such as 401(k)s and IRAs, are easier for the well-off to use. "Just to bring the system back to neutral, you have to make Social Security a better deal for lower-income workers," says Robert Pozen, chairman of MFS Investment Management and a Social Security wonk who's pitching his own reform plan.

• So why don't we just raise taxes, especially on the wealthy? It's an option. But higher taxes aren't just a drag on the economy; they're a kind of penalty on anybody who has either the discipline to save on his own or an appetite for greater risk. Social Security isn't an investment, but for many the return on a lifetime of payroll taxes isn't spectacular. Some people could find better ways to put the savings to work. And as Bush would say, it is their money.

• Will we accidentally undermine the system? Social Security was designed as insurance--a system that shares the risk of indigent old age with the whole working population, so that even the unwise and unlucky can retire with something. But the system's strength hinges on political support. For years people have believed that when it's their turn, they'll be rewarded for having paid their taxes. Bob Ben speaks for many when he says, "I've been paying into the system, and I expect to get a benefit for it. That's the bottom line." Adding private accounts to the mix could erode that faith. In a plan like Bush's, future workers would still pay their taxes into the traditional system but get much or even most of their benefit from their accounts. (That's because the offset would steadily wear away the other part of the benefit.) "The question then will be: Why the heck am I paying this tax?" says Steven Sass of Boston College's Center for Retirement Research.

The big economic question:

You'll recall that one reason Social Security is in trouble is that by 2050 we'll have just two workers supporting each retiree. That challenge doesn't go away even if we make Social Security's numbers add up. "The rising number of old people will be there whether we keep Social Security or cut it," says University of Texas economist James Galbraith. "Someone will have to pay for their care." We could cut benefits so far, for example, that millions of seniors have to move back in with their kids. Social Security would be as sound as a drum, but that wouldn't change the fact that all those retirees need housing. It would only change who pays for it.

In other words, Social Security isn't really the way we'll solve the burden of providing for tomorrow's elderly. It's just a way to assign responsibility for part of it. What really matters is that the economic pie be large enough to go around. If not, we'll have problems affording not only Social Security but everything else. If we're still a very rich nation, however, we will always be able to cut the elderly a fair deal.

We certainly can't count on a growing work force for this, as we did during the baby boomers' early career. Labor force growth is expected to slow to a crawl in the coming decade. The only solution is for each worker to produce more.

Economists argue a lot about whether we can really keep productivity pumping--and about the best policies to get us there. But there's a consensus that it would help if the nation as a whole could save more. We'd be better able to invest in the new businesses, technologies and infrastructure that might fuel future productivity gains. Unfortunately, we haven't helped ourselves much lately in this regard. With huge government deficits and low personal savings rates, we've been relying on foreign capital to fund our future growth.

Politicians on both sides of the aisle need to talk more about this. But for you and your family, the way ahead is clear. Save for your own future as best you can. If private accounts come, don't count on them to give you explosive returns. And if you've already run the numbers on your retirement plan, make sure you've left yourself a big margin for error, because you can't depend on your Social Security benefits staying this high or your taxes staying this low. And finally, be good to your kids. Because one way or another, you'll be counting on them.

Susan Stoga and Bob Ben, both 40

The Bens estimate they have paid at least $200,000 in payroll taxes, but fear they won't get anything back. "When I run our retirement figures," says Susan, "I never count Social Security. Any benefit will be a bonus." In fact, they will surely get something but would see less under the President's presumed plan than the system promises now. Personal accounts restore only some of the reduction.

Retiring in 2030 How a hypothetical top earner fares Average wage: $112,824

NOTES: All numbers are in today's dollars. Reduced benefit based on price indexing; Bush has yet to specify benefit changes. Personal account based on Bush proposal assumes 4.6% annualized return after inflation. SOURCE: Calculations based on MONEY assumptions and data provided by Jason Furman, Center on Budget and Policy Priorities.

Matt, 5, and Caroline Ben, 8 months

If a Bush reform succeeds, late this century, benefit cuts and personal account investments will have had years to build up. Their effect on Social Security will be dramatic. The Ben kids could get most of their benefits from their accounts, not from the traditional system.

Retiring in 2065 How a typical high (but not top) earner fares Average wage: $106,654

NOTES: All numbers are in today's dollars. Reduced benefit based on price indexing; Bush has yet to specify benefit changes. Personal account based on Bush proposal assumes 4.6% annualized return after inflation. SOURCE: Calculations based on MONEY assumptions and data provided by Jason Furman, Center on Budget and Policy Priorities.

It depends on your faith in stocks and on when you retire

If President Bush's plan becomes law, how should you exercise your new choice? Would it be smarter to have all of your payroll taxes stay in the system or should you take part of them out to invest in the new personal accounts? It's all hypothetical right now, of course, but one big number you will have to keep in mind is 3%. That's the annualized return, after inflation, you'll probably have to earn to break even in an account. This is because your other benefits will be reduced by every dollar you take out of the system, plus that 3% a year.

MONEY asked New Frontier Advisors of Boston to figure the odds that you'll beat that 3% hurdle. They looked at past stock and bond returns and market volatility from 1978 to 2004, and calculated that a portfolio of 50% stocks and 50% bonds has about a 15% chance of falling short after 35 years. On the upside, it has a 50% chance of earning 4.9% or more.

Think about Social Security as part of your retirement portfolio, along with 401(k)s and the like. Steven Sass of Boston College says that traditional Social Security benefits are like a top-quality bond--a source of safe income. If you give some of that safety up, you might need to consider adding bonds elsewhere.

Chance of coming out ahead with a personal account

NOTE: Probabilities based on historical returns and volatility, and adjusted for inflation assumptions. SOURCE: New Frontier Advisors.