Key Points
- America’s primary retirement program is grappling with a staggering $23.2 trillion long-term funding shortfall, coupled with the potential for substantial benefit cuts by 2033.
- Former President Trump proposed measures that would ideally increase financial support for about half of all Social Security retirees.
- While the proposed changes could provide immediate financial relief to certain retired workers, they might carry detrimental long-term consequences.
For many retirees, Social Security is more than just a monthly income; it is an essential safety net that many would find difficult to live without. The Center on Budget and Policy Priorities reports that in 2023, Social Security lifted 22 million individuals above the federal poverty line, with over 16.3 million of these being aged 65 and older. Additionally, annual surveys by Gallup conducted over the past 23 years have shown that 80% to 90% of retirees rely on Social Security to help cover their expenses.
Strengthening Social Security’s financial stability is a pressing priority for the aging workforce in America, and efforts to reform the program must start with strong leadership at the top.
While Trump has generally adopted a passive stance toward Social Security, focusing instead on efficiency-driven cost-reduction tactics, he has recently proposed a sweeping reform that promises to increase benefits for a significant portion of retirees. However, this plan is fraught with potential pitfalls.
America’s Retirement Program Needs Reform
The first Social Security retired-worker benefit check was distributed in January 1940, and since then, the Social Security Board of Trustees has published comprehensive reports detailing the program’s financial state. These yearly assessments allow the public to see precisely how funds are gathered and distributed.
More importantly, these reports offer forward-looking projections that account for ongoing demographic changes and fiscal policies to assess the program’s financial viability over the next 75 years. For the past four decades, these trustees have consistently revealed a long-term funding shortfall, meaning that the predicted income over the next 75 years is insufficient to cover projected outlays, which include benefits and administrative costs.
The 2024 Trustees Report highlighted that this long-term funding gap has risen to $23.2 trillion, a figure that continues to escalate each year. More urgent is the fate of the asset reserves in the Old-Age and Survivors Insurance Trust Fund (OASI), projected to be depleted by 2033. These reserves comprise surplus funds accumulated since the program’s inception that have not yet been disbursed as benefits or earmarked for administrative use, currently invested in interest-bearing government bonds as required by law.
If Congress does not take action before the reserves are exhausted, retirees and beneficiaries of deceased workers could face up to a 21% reduction in monthly benefits in just eight years.
Trump’s Proposal for Social Security Beneficiaries
In his first 100 days of office during his second, non-consecutive term, Donald Trump initiated various changes within Social Security. However, these changes are unlikely to effectively tackle the looming $23.2 trillion funding shortfall or relieve the coming depletion of the OASI’s asset reserves.
Trump has made it clear that he wants to put more money in seniors’ pockets. In a notable social media post dated July 31, 2024, he asserted that “Seniors should not pay tax on Social Security.” Recently, he emphasized this sentiment at a town hall, referencing forthcoming tax cuts planned to be the “largest in American history,” which would include eliminating taxes on Social Security benefits.
Historically, changes to Social Security tax laws have had wide-reaching implications. In 1983, a bipartisan Congress, under President Ronald Reagan’s administration, introduced amendments that gradually increased the retirement age, raised payroll taxes for American workers, and instituted a tax on Social Security benefits. By 1984, a tiered taxation structure was adopted, enabling the taxation of benefits based on provisional income thresholds, which have not kept pace with inflation. Consequently, what was initially expected to impact around 10% of senior households now affects approximately half of them.
If Trump succeeds in abolishing this controversial tax, around half of all retirees would effectively receive a raise, as their benefits would be untaxed.
The Potential Downside of Trump’s Plan
Many retirees support exempting Social Security benefits from taxation, as evidenced by an informal poll by The Senior Citizens League. However, Trump’s well-intentioned proposition could have unforeseen long-term repercussions.
To address the declining asset reserves of the OASI, Social Security needs to maximize its income. Currently, Social Security earns revenue primarily in three ways:
- Over 91% of the $1.35 trillion collected in 2023 came from a 12.4% payroll tax on earnings, which encompasses wages and salaries but not investment income. For reference, in 2025, earned income up to $176,100 will be subject to this payroll tax.
- Approximately 5% of income derives from interest earned on the OASI and Disability Insurance Trust Fund (DI), which is invested in interest-bearing government bonds.
- The remaining income comes from taxing Social Security benefits.
Fortunately, the primary source of Social Security’s income—the payroll tax—is steady as long as Americans carry on working and paying taxes. However, as the OASI’s reserves continue to dwindle, the program’s interest income will decrease, while the income from benefit taxation could rise significantly, projected to jump from $50.7 billion in 2023 to $132.8 billion by 2033.
If the taxation on benefits is removed, the OASI will lose critical income needed to sustain operations. While some retirees benefited at the outset, this short-term gain would expedite the exhaustion of reserves, potentially leading to larger reductions in benefits than the current projected 21% if the program is to remain functional for the next 75 years.
This scenario highlights a crucial truth: popularity does not always equate to sound policy.
Valuable Social Security Secrets for Retirees
For many Americans, retirement savings may be lacking. However, there are lesser-known strategies—referred to as “Social Security secrets”—that could significantly enhance retirement income.
One straightforward tactic could potentially yield as much as $23,760 more each year. By being informed about how to maximize Social Security benefits, retirees can secure a more confident financial future, allowing peace of mind in their golden years.
It is critical to leverage comprehensive strategies for navigating Social Security benefits effectively.
