Social Security serves as a major income source for many seniors today, even though those benefits are only designed to replace about 40% of the typical earner's pre-retirement paycheck. But the program's long-term financial stability is, at this point, questionable.

Social Security relies heavily on payroll tax revenue to stay afloat, but in the coming years, it anticipates a major decline, due to a mass exodus of baby boomers from the workforce. Of course, younger workers will come in to replace them, but not at a clip that's rapid and robust enough to compensate. As such, Social Security will soon owe more money in benefits on a yearly basis than it collects in revenue.

Social Security cards

Image source: Getty Images.

Thankfully, the program has trust funds it can tap to compensate for that impending shortfall. But once those trust funds run out of money, Social Security recipients may be in line for a devastating 24% reduction in benefits, which could happen as early as 2035.

In light of all of this, it's not totally surprising to learn that 71% of Americans aged 70 and over are worried about Social Security running out of money, as per the SimplyWise November 2020 Retirement Confidence Index. Interestingly, in July, only 29% of older Americans felt similarly, and only 54% shared that fear in September.

It could be that the ongoing coronavirus crisis has caused more seniors to worry about Social Security's long-term viability, considering the high unemployment rates we've seen. The question is, are these fears legitimate or overblown?

The state of Social Security

The good news is that Social Security isn't in danger of drying up completely. The bad news, however, is that lawmakers will need to intervene with a fix to avoid a reduction in benefits within the next decade-and-a-half.

President-elect Joe Biden has a plan to pump more money into Social Security by taxing earnings that exceed $400,000. Workers don't currently pay Social Security tax on all of their income. Rather, there's a wage cap that dictates how much income they pay those taxes on, and that cap changes from year to year. Right now, it's $137,700, and in 2021, it will increase to $142,800.

What Biden is proposing is to let workers off the hook on paying Social Security taxes for wages between $142,800 and $400,000, but to then reinstate that tax once earnings exceed $400,000. That way, the program gets the revenue it needs to avoid benefit cuts, and only wealthy individuals will wind up paying more tax.

Of course, this idea is by no means a done deal. Biden will need the support of lawmakers to pass this major change, and it's apt to be met with pushback. But even if it doesn't go through, lawmakers have time to hammer out other options to prevent Social Security from cutting benefits.

The key, however, is for them to present and implement viable, bipartisan solutions to avoid Social Security cuts -- cuts that will otherwise hurt not only future seniors, but also the many retirees today who rely on their benefits to avoid living in poverty.