For most retirees, Social Security provides more than just a check each month. America’s top retirement program represents a financial lifeline that many beneficiaries would struggle to live without.

For the last 23 years, national pollster Gallup has been surveying retirees to gauge what role their Social Security income plays. In all 23 years, between 80% and 90% of respondents noted their Social Security check accounted for a “major” or “minor” source of income, including 88% in 2024. In other words, Social Security benefits are necessary for an overwhelming majority of retirees to make ends meet.

The financial well-being of Social Security is paramount to the success of our nation’s aging workforce. Unfortunately, this financial foundation has been deteriorating for decades. Current and future beneficiaries will be looking to their elected officials to tackle what ails Social Security — and this includes President-elect Donald Trump.

However, not all Social Security proposals are necessarily winners, as you’re about to see.

Former President and President-elect Donald Trump giving remarks. Image source: Official White House Photo by Andrea Hanks.

Social Security benefit cuts may be just nine years away

Every year since the first retired-worker benefit check was mailed out in January 1940, the Social Security Board of Trustees has released a report detailing the financial health of this leading social program. Since 1985, the Trustees Report has warned of a long-term funding obligation shortfall.

In simpler terms, the Trustees don’t see enough revenue being collected by Social Security in the 75 years following the release of a report to satisfy expected outlays, including cost-of-living adjustments (COLAs). The 2024 Social Security Board of Trustees Report pegged the program’s unfunded obligations at a staggering $23.2 trillion (and growing) through 2098.

To make matters worse, the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for doling out monthly payments to retired workers and survivor beneficiaries, is forecast to exhaust its asset reserves by 2033. While this, thankfully, doesn’t mean Social Security will be insolvent or go bankrupt — Social Security can’t go bankrupt based on how it currently generates income — it does point to sweeping benefit cuts of up to 21% nine years from now if nothing is done.

Although some people on social media message boards are often quick to (incorrectly) blame “congressional theft” or “undocumented workers” for what ails Social Security, ongoing demographic shifts are what truly ails this vital program.

In no particular order, Social Security’s struggles can be traced to some combination of:

• Baby boomers leaving the labor force in greater numbers, which is weighing down the worker-to-beneficiary ratio.
• Increased life span (Social Security was never designed to dole out payments to retirees for decades).
• A historically low birth rate, which will eventually be a drag on the worker-to-beneficiary ratio.
• A more-than-halving in net legal immigration into the U.S. since 1998 (Social Security relies on a steady inflow of legal immigrants to boost payroll tax collection).
• Rising income inequality, with a higher percentage of earned income escaping payroll taxation as time has passed.

The grim reality: Donald Trump’s Social Security plan makes things worse

Most lawmakers have avoided tackling Social Security’s visible problems because there’s no way to fix the program without making at least some beneficiaries worse off than they were before. But presidential candidates aren’t so lucky, and are typically expected to have a plan of action for America’s most important retirement program.

During President-elect Trump’s campaign, he made two proposals regarding Social Security. The grim reality is that neither would help the program nor its beneficiaries over the long run.

The first proposal offered by the incoming president is to effectively leave Social Security alone. Kicking the can down the road has been the status quo of multiple administrations, and Trump backed this idea up earlier this year by proclaiming that “you don’t have to touch Social Security.”

However, Trustees Reports have made it abundantly clear that doing nothing is a terrible plan. While kicking the can might save politicians from some finger-pointing from the public, it’s not going to stop the program’s funding obligation shortfall from growing, or do anything to positively impact the OASI’s asset reserves, which are on track to be exhausted in less than a decade.

Image source: Getty Images.

Ending the taxation of benefits might expedite the need for sweeping benefit cuts

The other, more front-and-center proposal from President-elect Donald Trump is to eliminate the taxation of Social Security benefits. He proclaimed this position loudly on social media platform Truth Social in July by stating, “Seniors should not pay tax on Social Security.”

This is a proposal that has a ton of support from retirees, mainly because it’s possibly the most-hated tax in America. But getting rid of this tax with Social Security’s financial situation precarious at best would be a big mistake.

With Social Security’s asset reserves running dangerously low in 1983, Congress passed and then-President Ronald Reagan signed the Social Security Amendments of 1983 into law. This last bipartisan overhaul of America’s top retirement program gradually raised the full retirement age and payroll taxation on workers, as well as established the federal taxation of Social Security benefits.

Beginning in 1984, up to 50% of benefits could be taxed at the federal rate if provisional income (adjusted gross income + tax-free interest + one-half of benefits) topped $25,000 for a single filer or $32,000 for a couple filing jointly. In 1993, the Clinton administration added a second tier, allowing up to 85% of Social Security benefits to be exposed to federal taxation if the provisional income for a single filer or couple filing jointly topped $34,000 and $44,000, respectively.

The gripe with taxing Social Security benefits — aside from the misplaced belief that it’s a form of double taxation — is that these provisional income thresholds haven’t been adjusted since they were respectively introduced four and three decades ago. But with Social Security outlaying more in benefits than it’s generating in income each year, eliminating one of its three sources of income would be a grave mistake.

The taxation of benefits is expected to generate $943.9 billion in cumulative income for Social Security from 2024 through 2033. Eliminating this tax would put Social Security on considerably worse financial footing and potential expedite the timeline to sweeping benefit cuts.

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