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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26 Comments
Only in a socialist country is there such a thing as a free lunch.
i paid in for 42 yrs with no choice but to pay
maybe for you, I paid in for 42 yrs worth that I didnt have a choice of not paying.
You think Social Security is a “free lunch”? Only in an oligarchy the rich don’t pay taxes , oh which we are now. Providing benefits for their citizens like healthcare, tax credits for fsmilies, services like daycare isn’t socialism. You don’t even know the meaning. Read,take a class and stop electing billionaire morons.
Y E S ! Thank you for your spot-on, intelligent, factual comment. One (of many) things which the The Wrong will never admit – “When we all do better, we ALL do better.”
Social Security is not a welfare program and it was not free to the recipients. Learn the difference.
If you actually believe there is such a thing as a “free lunch” ANYWHERE you have just
flunked Finance 101
If the funds stolen for none-SS purposes is replaced by funds realized from a vast realignment of our bloated government, Social Security will be fine. The social security funds have been used for decades improperly. Now it is time to remedy this theft and replace monies taken for other purposes.
hardly a socialist program I want my $$$$ that i paid
Social Security is a fine and civilizing program. It emerged from the Great Depression of late 1920s early 1930s, when the American People suffered greatly, including starvation. Franklin D. Roosevelt, a great leader, initiated this program. To avoid the suffering in future from economic downturns, upheavals and war. We emerged from WW2 a powerful nation on a roll, while most of the rest of the world was broken, in ruins and hopeless debt. Prosperity bloomed in the United States, and Social Security was healthy. But we note, that since it’s inception, it has wrongfully been used as a slush fund, including financing the fighting of overseas wars. Had the payments into this system, been parlayed correctly and not diverted, the system would be miles in the black now and into the future. So all the lies and media manipulations are just that, the system is approaching trouble only because it was tapped and misused.. One protective measure might be to file liens on Federal Reserve Lands, not only to collateralize the Soc Sec system, but to protect said lands from seizure by Financial lenders owning our National Debt, including Communist Red China. Current and future administrations need to rethink their intents and protect this vital to the American People asset, Social Security. Period.
How is double taxation a misplaced belief, do they not take SS out of our paychecks, and then u tax SS check again when they retire? All the mumbo jumbo,excuses,the fact still remains u hit ppl twice for SS payments. If we’re running out of SS money how bout deporting illegals and their families back to where they came from , and then use that money and put it back into the SS fund?While you’re at it,how bout investigating welfare and food stamp fraud? There are so many WASTEFUL govt programs , let’s shut them down and us the money to replace the funds that have been stolen from the SS fund?
true fact Suzy!!! PLUS SS NEEDS TO GO THRU AUDIT!!!! #1: illegals should NOT be paid; #2 WHO “borrowed from” the SS Fund & WHY??? #3: DOUBLE TAX??? I’ve already PAID tax on SS from my YEARS of payck!! #4 when I was injured in a car-wreck & could NOT work, it was suggested to “claim disability thru SS” which I did AND when I returned to work, I informed them to STOP PMT — but the creeps KEPT sending $$ – so be being honest KEPT calling & returned funds, BUT HOW MANY PEEPS WOULD TAKE THOSE ACTIONS?????? BROKEN SYSTEM NEEDS HEAVY THOROUGH AUDIT ASAP!!!!!!!!!
Social Security IS socialism, writ large.
It becomes the government’s money when they tax you. Doubt it? Try to withdraw it and invest it in something that pays better returns. If it was your money, they couldn’t block you from taking it. They give some of it back in small dribs and drabs, until you die, THEN THEY keep what’s left.
Roosevelt’s administration was rife with commies, who influenced him on everything from war, to peace, to the wild-eyed “social” programs financed by your money – PRECISELY what they did in the USSR.
If Americans could have invested the taxes taken from them by the government for SS, virtually all of those taxpayers would be enjoying benefits far in excess of the paltry SS checks, AND they could be borrowing against it and leaving what’s left to their heirs. You can’t do that with Social Security’s money confiscated in taxes because it’s not yours. It’s the government’s.
Without SS, anyone who couldn ‘t manage his own money could rely on charity to pay the bills. But with SS, government steps in and pretends distributing other people’s money is charity. It’s not. It’s redistributing other people’s money – socialism. Text-book socialism.
As Margaret Thatcher explained, the problem with socialism is that eventually you run out of other people’s money. Welcome to reality. It not only bites. It sucks.
Nope, not even close. But, thanks for playing!
Im cancelling my Motley Fool subscription as you’ve reared your TDS head. Where were you complaints about Biden kicking the can down the road? I am so SICK AND TIRED of you leftists ramming your politics in my face.
They typically write to make both sides happy, there have been a lot of pro biden articles as well. Wishing you all the best
Gee, I can’t imagine how Motley Fool is going to survive without ya, Sparky.
So, tell us…which do you love most, the action figure cards, the golden sneakers, or the $100,000 watch?
why not, just pay social security benefits only to retirees over 62 years of age. And, collect social
security taxes on higher incomes.
Not 62 but 70 years of age
Seems to me that the max tax on Social security should be capped at 50%. Half the money paid in is with after tax dollars from employees paychecks. Want more money for social security? Eliminate the cutoff amount where people no longer pay for social security each year. There is no limit for medicare tax why should there be a limit for social security tax? While I’m at it, why hasn’t the medicare age gone up equal to the social security age? Come on President Trump, you can make the republican party a hero by saving social security. Also if you limited immigration to persons who have a sponsor, let the sponsor support them, not the government.
The article talks about the imminent bankruptcy of SS and how serious this would be
then proceeds to describe a strategy on how to further screw it up!
A lesson in self greed and screw everyone else!
Not at all worried about it. I retired at age 60 from the railroad in 2013 after 39 years. Me and my wife don’t get Social Security, what we get is way better.
The grim reality is that Motley Fool consists of dense, dumb, Dunceocrats.
Guess what? Calling people names does not weaken their ideas. I know you have been taught to believe that it does, and it makes you look smart. But it doesn’t and you don’t, but you have been taught by greedy, narcissistic liars who call others names because they have nothing else to say except pleasing lies that you want to believe until you finally become a cult member. Then you try to do what they do, but looking at your lame imitation proves why you are and always will be on the receiving end of such stark nonsense, just like a slight majority of people in this country (or Russian propaganda and rigging of our voting system . I guess Trump was right, at least for this last election. Elections ARE rigged, by (not so) surprisingly, the very side who claimed to be its victim back in 2020, not the other side.) Regardless. we have finally been beaten… by ourselves with the assistance of Putin and his traitorous American bootlickers who will run this country like a concentration camp for the next four years. I saw this day coming ever since the late ’80s when Republicans became very focused on destroying public education. Uneducated people are so much easier to fool into supporting their worst enemies.
Boy, did you hit the nail on the head.
Sound more like he hit himself in the head. Who let Michael Stivek into this thread?