Donald Trump plans to make changes to America’s Social Security system with his return to the White House in January.
The president-elect promised on the campaign trail to cut taxes on Social Security benefits in his second term.
“People on Social Security are being killed, and one of the things I’m doing is no tax for seniors on Social Security, and I’ll get it done quickly,” Trump told “Fox & Friends” in August.
For some baby boomers, lower Social Security taxes could mean larger monthly checks in the short-term. But experts predict that the Social Security tax cuts, along with other campaign promises made by Trump, could quickly drain the national Social Security fund. That would put benefits at risk for low-income retirees and younger generations, who may rely on that income as they age.
“It’s designed to help retirees, but the people it’s going to hurt are people that rely on Social Security the most,” Taylor Lee, a certified financial planner at Belmont Capital Advisors, told BI of Trump’s Social Security tax cut.
More than 72 million Americans receive Social Security and the estimated average monthly check is $1,907 a month, per the Social Security Administration. Americans can begin taking Social Security at age 62, or wait until their full benefits kick in at 67, the national retirement age.
Trump’s campaign promise comes as Business Insider has heard from older adults with limited retirement savings, many of whom are struggling to afford necessities like housing and groceries on their fixed Social Security income. Income taxes on Social Security apply to all beneficiaries with an annual household income above $25,000, and most pay taxes on at least 50% of their benefits. Lower-income beneficiaries pay less in taxes.
Social Security tax cuts would hurt low-income retirees, younger generations
US Social Security will be depleted in the next decade without Congressional action. The fund is largely financed through payroll taxes that Americans contribute to throughout their career.
A report published in October by the nonpartisan Committee for a Responsible Federal Budget said that Trump’s campaign promises — which also includes ending taxes on tips, reducing some income taxes, expanding deportations, and imposing tariffs — would take a toll on the Social Security fund, making it “insolvent” within the next six years. That’s three years earlier than the Congressional Budget Office’s current estimation.
Those policies would also lead to a 33% benefit cut in 2035, a 10% increase from what the Congressional Budget Office projects under the current law.
Lee said that low-income boomers and younger generations are likely to feel the brunt of these cuts.
Low-income boomers living on Social Security already pay less income taxes, so they wouldn’t see the benefits Trump promised. Lee said that many don’t have other retirement savings to fall back on if their benefits are slashed.
He added that older Americans who are wealthy or middle class would feel less stress from Social Security cuts, and may benefit in the short term from Trump’s tax plan.
“It would help people in the middle class, people that have the luxury of having a 401(k) or an IRA and have multiple sources of retirement income,” Lee said. “But the people that’s going to hurt the most are people that don’t have that traditional retirement income.”
Lee said it’s possible that younger generations will have lower Social Security benefits, requiring them to rely more heavily on retirement savings.
To be sure, any changes Trump hopes to make the tax or Social Security systems would need to be approved by Congress. Working in his favor is that the Senate will have a Republican majority. (Votes for House representatives are still being counted.) Lee added that tax funding is also not the only challenge facing Social Security: people are living longer, meaning that more benefits funding is required per person.
As for other retirement finances, like 401(k) accounts and investments, it’s unclear what impact a second Trump term will have. The president-elect plans to impose tariffs on foreign goods and make broad tax cuts, a move that is likely to drive inflation and make the cost of living more expensive.
With the future of Social Security uncertain, Lee said it’s important for retirees to build a strong financial plan.
“There’s a lot of planning that we can still do,” Lee said. “Government policy — we really can’t affect that. So we just have to control what we can control.”
Are you relying on Social Security in retirement? Are you adjusting your retirement plans based on Trump’s return to office? If so, reach out to this reporter at [email protected].
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