Social Security serves as a financial lifeline for millions of older Americans. But the program is facing some financial challenges that, if left unaddressed, could result in a serious revenue shortfall down the line.

Where does that leave beneficiaries? According to the most recent Trustees Report, seniors on Social Security could see a 20% reduction in scheduled benefits come 2035. And similarly, future beneficiaries could wind up collecting 20% less than the amount they'd otherwise be entitled to based on their earnings records.

Of course, that reduction is by no means set in stone. There's a good chance that lawmakers will intervene with a fix, thereby preventing future benefits from taking such a monumental hit. But there's no guarantee that will happen, either, and so those expecting to rely heavily on Social Security should brace for the possibility that benefits may be reduced in the not-so-distant future -- whether by 20% or a different figure.

Older man reading newspaper outdoors


Unfortunately, a good 39% of near-retirees aged 55 to 65 aren't aware that future Social Security cuts are on the table, according to a recent survey by MassMutual. And that's a dangerous thing to be in the dark about.

The importance of keeping current on Social Security

One the one hand, worrying about a future reduction in benefits isn't a productive use of older workers' time. On the other hand, having that information could prompt those who are behind on savings to ramp up in that regard.

Incidentally, entering retirement with a solid level of savings is important even if Social Security benefits aren't cut in the future. Right now, those benefits will generally replace about 40% of the average earner's pre-retirement wages, but most seniors need more like 70% to 80% of their former earnings to maintain a comfortable lifestyle. If benefits are reduced down the line, those with limited savings are apt to struggle even more.

Of course, the good news in all of this is that Social Security is not at risk of going broke completely. The program gets its revenue primarily from payroll taxes, so as long as we have a workforce, it can stay afloat to some degree. But in the coming years, Social Security is expected to owe more in benefits than it takes in in revenue -- we can thank the mass exodus of baby boomers from the workforce for that situation. And while it does have trust funds it can tap to make up for revenue shortfalls, those funds are expected to run dry by 2035 -- hence, the aforementioned projection of cutting benefits at that point.

It's too soon to tell what the future will hold for Social Security and whether benefits will indeed be reduced across the board, but if you're a near-retiree, do yourself a favor and try to stay current on how the program is doing. And also, make every effort to pad your savings to the greatest extent possible so that if benefit cuts do happen, your retirement won't suffer.