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President-elect Donald Trump is set to take office on Jan. 20, and while many Americans are excited about the changes he may make in his second term, others remain anxious. One of the issues that many seniors will be keeping a close eye on over the next four years is Social Security, which is inching ever closer to insolvency.
Trump has made some bold statements about changes he would like to make that would directly or indirectly affect Social Security. But whether those changes would be good or bad for seniors isn’t that easy to sort out.
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Trump is planning big changes for Social Security
During the 2024 presidential campaign, Trump made a social media post expressing that seniors should not pay taxes on their Social Security benefits. To be clear, he wasn’t referring to the Social Security payroll taxes that workers pay.
He was referring to a separate benefit tax put in place in the 1980s that taxes the benefits of some seniors if their provisional incomes — adjusted gross income (AGI), plus nontaxable interest from municipal bonds, and half their annual Social Security benefit — exceeds certain thresholds for their marital status as outlined in the table below:
|
Marital Status |
0% of Benefits Taxable if Provisional Income Is Under: |
Up to 50% of Benefits Taxable if Provisional Income Is Between: |
Up to 85% of Benefits Taxable if Provisional Income Exceeds: |
|---|---|---|---|
|
Single |
$25,000 |
$25,000 and $34,000 |
$34,000 |
|
Married |
$32,000 |
$32,000 and $44,000 |
$44,000 |
Data source: Social Security Administration.
The taxation thresholds listed above haven’t changed in three decades. With average benefit checks rising, more seniors encounter these taxes every year. Eliminating this tax could put extra money in the pockets of millions of seniors, which may increase their financial security — at least in the short term.
Short-term gains could give way to long-term losses
The big problem with Trump’s proposal to eliminate Social Security’s income taxes on benefits is that those taxes are one of just three critical funding sources for the program. The other two are the payroll taxes that workers pay and the interest income on the program’s trust funds.
Those trust funds are less than a decade away from being depleted because Social Security’s cost has exceeded its income for years now. The latest estimates suggest the trust funds will run out in 2034 — and that was before President Joe Biden passed the Social Security Fairness Act, which will accelerate the trust fund depletion date by about six months.
If Trump is successful in eliminating income taxes on benefits, Social Security will have even less time until it becomes insolvent. That doesn’t mean benefits will go away. Even in the worst-case scenario, Social Security will still be able to pay out about 77% of scheduled benefits after the trust funds are depleted. But retirees could still face significant cuts if the government can’t find a way to increase Social Security’s funding.
Social Security has faced funding crises before, and it’s likely the government will address this shortfall before cuts become necessary. But the closer that insolvency deadline gets, the fewer options the government has to fix it.
A lot remains to be seen
Trump’s plans for Social Security would have a mix of positive and negative consequences. Which matters more to you probably depends on personal factors, including how much longer you expect to receive benefits. Younger retirees and workers will likely be more concerned about the long-term implications of Trump’s plan.
But one thing to remember is that Trump can’t eliminate income taxes on benefits on his own. He’d need Congress to pass a law doing that, and right now, it’s not clear whether that will happen. It’s possible Social Security won’t see any major changes under Trump if he can’t get the support he needs. For now, all retirees can do is wait to see what the next four years hold and build additional sources of retirement income so they’re less reliant on Social Security.
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