Social Security serves as a key source of income for millions of older Americans. But this week, some bad news emerged on the Social Security front.

According to the just-released 2020 Trustees Report, the program's trust funds are expected to run out by 2035. Now that date isn't shocking; it aligns with what the 2019 Trustees Report predicted. What does get worse, however, is the extent to which benefits may be cut in the absence of those trust funds.

Last year, the Social Security Trustees projected a 20% reduction in scheduled benefits come 2035. This year, they're calling for a 21% reduction. And while that 1% may not seem like a huge jump, let's remember that many seniors count on Social Security as their primary or sole source of income. To lose any amount of those benefits in the future could therefore be downright catastrophic.

IMAGE SOURCE: GETTY IMAGES.

A potentially bleak future

To clarify one point of confusion on the Social Security front, the program is not in danger of running out of money completely. Social Security gets the bulk of its funding from payroll taxes -- the ones employees pay for the privilege of having a job. However, in the coming years, the program is expected to owe more in benefits than it collects in revenue.

Why? Baby boomers are exiting the workforce in rapid succession, and there aren't enough workers coming to take their place. As such, Social Security will be spending more on benefits than the money it takes in. Now the program does have trust funds it can tap in that scenario to avoid cutting benefits to those who need them -- think of those funds as a savings account of sorts. But once those trust funds run out, Social Security will have no way of compensating for its revenue shortfall, and so current and future recipients may be looking at sizable benefit cuts if lawmakers aren't able to step in with a fix.

Of course, there's no easy answer to what a fix might entail. A number of solutions have been tossed around, all of which have their own unfavorable consequences. One idea is to raise or even eliminate the payroll tax cap to generate more income for Social Security. Right now, workers only pay Social Security tax on their first $137,700 of earnings. Increasing that threshold would raise more money for the program, but also put a strain on earners whose income is moderately high, but not extraordinarily high. (Remember, $137,700 is not a particularly high salary in parts of the country where a starter home costs close to $1 million.)

Another suggestion is to raise full retirement age, or the age at which seniors are entitled to collect their monthly benefit in full. The logic is that since Americans are living longer, doing so buys the program a bit of a financial reprieve without denying recipients the income they're entitled to. But critics of this idea are quick to point out that life expectancies haven't risen proportionately among lower-income individuals, and that raising Social Security's full retirement age will ultimately hurt the people who need those benefits the most.

Unfortunately, there's really no great solution to Social Security's financial woes. Both current and future recipients alike should therefore brace for the possibility that come 2035, benefits may look a lot different.

The Motley Fool has a disclosure policy.