Social Security is, for better or worse, this country's most important social program. As of the November snapshot from the Social Security Administration (SSA), nearly 61.9 million people were counting on the program for a monthly stipend. Of these folks, 42.4 million were retired workers. 

Why is this so important? Data from the SSA finds that more than three out of five retired workers relies on Social Security to make up at least half of their income, with around a third of retirees leaning on it for essentially all (90% or more) of their monthly income. In other words, without this guaranteed monthly check, the elderly poverty rate in the U.S. would likely be significantly higher.

Dice next to a piece of paper that reads, Will Your Social Security Be Enough?

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Social Security is less than two decades away from big trouble

Unfortunately, Social Security isn't in the greatest shape. The 2017 release of the Social Security Board of Trustees report found that the program is headed toward disaster in less than two decades. By 2022, Social Security is expected to begin paying out more in benefits than it's generating. Just 12 years later, in 2034, its approximately $3 trillion in asset reserves are expected to be completely exhausted.

If there is a silver lining among all of this, it's that Social Security isn't going bankrupt. Its 12.4% payroll tax on working Americans provides the bulk of revenue for the program, which means that as long as folks keep working, and Congress doesn't adjust how the program is funded, there will be money for the SSA to disburse to eligible beneficiaries.

However, it doesn't mean that the current payout schedule is sustainable. The Trustees report projects the need for an across-the-board cut to benefits of up to 23% by 2034 if new sources of revenue aren't created. Given the aforementioned reliance on Social Security by a majority of retired workers, and the expected reliance of baby boomers, the thought of a 23% cut in benefits isn't something that lets them sleep well at night. These folks, and working Americans, are rightly worried about a potential cut to their Social Security benefits.

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Surprise! Your Social Security benefits are already falling

Well, America, I have a news flash for you: Your Social Security benefits are already being cut in one or possibly two ways, whether you realize it or not.

To begin with, according to an analysis from The Senior Citizens League, the purchasing power of Social Security dollars has plunged by 30% since 2000. In effect, Social Security dollars that once bought $100 worth of goods and services now buys about $70 worth of goods and services. Why the decline? Look no further than Social Security's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The issue with the CPI-W is simple: It takes into account the spending habits of working-age Americans, whereas 68.5% of all Social Security recipients are retired workers ages 62 and older. As a result, the CPI-W gives more weighting to education, apparel, entertainment, food, and transportation costs, while underrepresenting medical care and housing expenditures, which account for a higher percentage of spending for older Americans. The end result is that the CPI-W tends to underreport the inflation that seniors are really experiencing. In fact, the medical care inflation rate has outpaced Social Security's cost-of-living adjustment (as determined by the CPI-W) in 34 of the past 36 years! That's why seniors and working Americans are seeing their Social Security payouts cut, whether they realize it or not.

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And that's not all.

Back in 1983, the Reagan administration signed into law the last major overhaul of Social Security, which included, among other things, a staggered increase to the full retirement age over four decades. Beginning in 2017, the full retirement age -- the age where retired workers become eligible for 100% of their monthly benefit -- began increasing by two months per year. By 2022, it'll max out at age 67. 

This subtle change, which you could say has been hidden in plain sight for decades, means that folks born in 1960 or later either have to wait longer to receive their full payout, or accept a steeper reduction in their monthly stipend by claiming early. Raising the full retirement age is effectively a subtle cut to benefits for working-age Americans.

There's no easy fix

The real concern for retirees and workers is that there's no easy fix for this dilemma, primarily because Democrats and Republicans don't see eye-to-eye on practically anything when it comes to the future of Social Security.

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For example, Democrats have proposed a new inflationary tether for Social Security known as the Consumer Price Index for the Elderly (CPI-E). It would, as the name implies, only factor in the spending habits of households with people aged 62 and up. In doing so, it should give a more accurate representation of the inflation seniors face, resulting in meatier cost-of-living adjustments and less purchasing power loss.

Unfortunately, switching to the CPI-E would only deplete Social Security's asset reserves even quicker, which means Republicans would never go along with such a plan. Plus, the CPI-E fails to take into account Medicare Part A (hospital insurance) expenditures, meaning it'd still likely underrepresent the true inflation seniors are dealing with. Thus, there is no quick solution to fixing Social Security's loss of purchasing power.

There's also probably no chance of any major Social Security overhaul without both Democrats and Republicans finding a middle ground. My guess is that middle ground will include a modest increase in the full retirement age.

If there's one key takeaway from all of this, it's that Social Security shouldn't be counted on as a primary income source during retirement.

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