Social Security is a crucial income source for many retirees. But that income stream is in trouble.

By 2035, Social Security benefit cuts might be on the table. That is, unless lawmakers intervene. But whether they take action -- and do so in time -- are the big questions.

Why is Social Security in such bad shape?

The Social Security Administration has known for a long time that its finances are far from solid. And now, the program is getting closer to the point when benefit cuts could become a reality.

Social Security cards.

Image source: Getty Images.

The problem is that the program gets the bulk of its revenue from payroll taxes. But in the coming years, that revenue stream will shrink as baby boomers exit the labor force in droves.

Those retiring workers will be replaced by incoming workers, but the Social Security Trustees are still projecting a shortfall. And although the program can tap its trust funds to make up for that revenue gap, once those funds are depleted, benefit cuts become an option.

In their latest report, the Trustees projected that the program's trust funds will be out of money by 2035. That's actually an improvement over previous projections, which set that date at 2034.

In fact, many people were expecting that depletion date to be sooner in light of the mass unemployment crisis that occurred in the wake of the pandemic. In 2020, millions upon millions of people were out of work, and that meant they weren't paying into Social Security. So the fact that we're seeing that 2035 date is actually an improvement over what could've been.

Still, once those funds are depleted, benefit cuts could be the only option, unless lawmakers come up with a fix. But will they?

Nobody wants a poverty crisis

There are many seniors today who get all or most of their income from Social Security. For those people, cutting benefits could spur a major poverty crisis. That's not something lawmakers want, so it stands to reason that they would be willing to do a lot to avoid it.

But what can (or will) they do? And when will Social Security's funding shortfall become a priority?

The program's Trustees have been sounding warnings for years about this issue, and so far, no action has been taken. And while it's easy to argue that we're not looking at benefit cuts until 2035, and it's only 2022, the reality is that changes to the program to avoid those cuts can't wait 13 years. They need to happen sooner, possibly even today.

One solution, for example, is to push back full retirement age, which is when seniors can collect their benefits in full without a reduction. Right now, that age is 67 for anyone born in 1960 or later.

Lawmakers have proposed extending that age to 68 or 69, and it's a reasonable solution if they make it official soon. If they don't, it just won't work, namely because it's going to be very hard to get away with telling seniors their full retirement age is changing without warning.

Another solution is to lift the wage cap for Social Security tax purposes. Right now, earnings beyond $147,000 aren't taxed to help fund the program. That's another option that might truly help solve its financial problems. But lawmakers can't wait until the trust funds are down to their last dollars to make that happen.

All told, lawmakers have the power to prevent benefit cuts, and it's largely in their best interest to take action and prevent a scenario in which millions of seniors are plunged into poverty. But the fact that they haven't acted already is troubling. And if they wait too much longer, we could reach a point where benefit cuts have to happen, even if that's what nobody wants.