Will the 2024 Election of Donald Trump Impact Social Security?

Vault’s Viewpoint

• Donald Trump has pledged not to cut Social Security or raise the retirement age, and he proposes eliminating taxes on Social Security benefits.
• There are concerns that President Trump’s economic policies, such as eliminating taxes on Social Security benefits and mass deportation, could negatively impact Social Security’s long-term sustainability.
• Without a viable plan to replace lost revenue, significant changes to Social Security are unlikely, leaving its long-term sustainability in question.
• Due to the uncertainty and other factors, future retirees need to consider alternative sources of income beyond Social Security.

President-Elect Donald Trump’s Promises and Proposals

During his campaign, Donald Trump repeatedly stated he will not “cut one cent” from Social Security or raise the retirement age. During a rally in Pennsylvania, Trump stated, “Seniors should not pay taxes on Social Security, and they won’t.”

Trump has also pledged not to raise the retirement age and suggested that economic growth and tapping into “incredible wealth under our feet” in the form of oil and gas could help bolster Social Security’s finances. But some argue that these measures would do little to address Social Security’s long-term funding shortfall.

The Impact of Eliminating Taxes on Social Security Benefits

One of Trump’s key proposals is to eliminate taxes on Social Security benefits. According to the Social Security Administration (SSA), individuals with an income between $25,000 and $34,000 per year are subject to taxes on up to 50% of their Social Security income. If they earn more than this, as much as 85% of benefits can be subject to tax. Proponents of eliminating these taxes argue it would give retirees more money to spend on their daily needs, healthcare and other expenses. 

While this move could put more money in the pockets of beneficiaries, it could also reduce the program’s funding. Social Security relies on these taxes for a portion of its revenue, and eliminating them could exacerbate the existing funding shortfall. According to the Committee for a Responsible Federal Budget (CRFB), there could be a significant revenue loss, estimated at approximately $950 billion over the next decade. 

What Do Experts Say?

Kevin Thompson, finance expert and founder and CEO of 9i Capital Group, suggests this loss would “bring the trust to insolvency three to four years sooner than anticipated, leading to an overall reduction for future recipients.”

Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, suggests that eliminating taxes on Social Security benefits could provide “a few extra dollars each month” as financial relief for seniors, especially in light of recent inflation. But he also highlights the potential negative impact on federal revenue, noting that with a growing national debt and aging population, eliminating taxes on Social Security benefits “could be a disaster.” 

Beene emphasizes the importance of having a strategy to offset this loss, stating, “If you’re going to eliminate that source of revenue, you have to have a good plan for replacing it.”

The Impact of Mass Deportation on Social Security

Supporters of mass deportation believe it could create more job opportunities for American citizens and legal residents, potentially increasing wages since undocumented workers typically accept lower pay. They also argue it would improve national security by removing individuals living in the country illegally and lessen the financial strain on public services and welfare systems, ultimately saving taxpayer money. 

But deporting undocumented immigrants would decrease the number of workers contributing to the system, resulting in a significant loss of revenue for Social Security. Undocumented immigrants pay into Social Security through payroll taxes taken from their earnings. The Institute on Taxation and Economic Policy (ITEP) reported that undocumented workers contributed around $26 billion in Social Security taxes in 2022.

The SSA has projected that the Social Security Trust Fund could be depleted by 2035 if no changes are made. The loss of contributions from undocumented workers could move this date even closer.

What Do Experts Say?

Both Beene and Thompson highlight the substantial financial contributions that undocumented workers make to the Social Security fund, emphasizing the potential negative impact of mass deportation on the system. 

Beene notes the billions of dollars contributed annually to the Social Security fund is a significant figure and a “key statistic often missing in debates on the issue.” He stresses that this financial factor must be considered if mass deportation were to take place, as replacing this lost revenue would require a significant influx of new workers.

Will Social Security Change Much Under President Trump?

Both Beene and Thompson note that without a viable plan to replace lost revenue, the proposed changes to Social Security are unlikely to materialize, leaving the program’s long-term sustainability in question.

Beene points out that despite the urgency of the situation, multiple administrations from both major parties have repeatedly deferred making necessary changes, largely out of fear of voter backlash. He suggests that, aside from President Trump’s proposal to lower or eliminate taxes on benefits, it is unlikely that we will see any major changes to Social Security in the near future.

Thompson echoes this sentiment, expressing skepticism that Social Security will undergo significant changes under the new administration. He believes that much of the rhetoric surrounding Social Security reform is just that—rhetoric—and that there is no money in the budget to offset the cost of eliminating taxes on benefits.

Should Retirees Rely Solely on Social Security?

Future retirees need to think about their financial security and stability during their retirement years and will likely need to have a retirement plan that looks beyond Social Security. Here’s a look at seven key reasons why Social Security shouldn’t be your only source of income:

• Social Security’s uncertain future: Social Security faces long-term funding challenges. The Social Security Administration has projected that the Social Security Trust Fund could be depleted by 2035 if no changes are made to the program. This uncertainty means that future benefits could be reduced or the program’s structure might change, potentially impacting the amount retirees receive.
• Rising cost of living: The cost of living tends to increase over time due to inflation. While Social Security benefits include cost-of-living adjustments (COLA), these may not always keep pace with the actual increases in living expenses. Having additional sources of income can help retirees maintain their standard of living.
• Diverse income streams: Relying solely on Social Security can be risky. Diversifying income streams—through personal savings, investments, pensions and other sources— can help retirees manage unexpected expenses, healthcare costs and other financial challenges that may arise.
• Healthcare costs: Healthcare expenses often increase with age. While Medicare covers many healthcare costs for retirees, it doesn’t cover everything, and out-of-pocket expenses can be significant. Additional income can help cover these costs and help ensure retirees receive the care they need without financial strain.
• Lifestyle and leisure: Retirement is a time when many people wish to enjoy their hobbies or travel. Additional income sources can provide the financial freedom to pursue the things that matter most to you and enhance your quality of life during retirement.
• Legacy and inheritance: Many retirees wish to leave a legacy or inheritance for their loved ones. Having alternative income sources can help you provide financial support to family members.
• Economic volatility: Economic conditions can be unpredictable. Stock market fluctuations, changes in interest rates and other economic factors can impact retirement income. Having multiple sources of income can help mitigate these risks and provide greater financial stability.

Alternatives to Social Security

Given the uncertainties surrounding Social Security, consider these alternative sources of retirement income.

• Personal retirement savings: Building a personal retirement nest egg through 401(k) plans, IRAs or other retirement accounts can provide a significant source of income. Contributions to these accounts often offer tax advantages, and the compounding growth over time can help accumulate substantial savings for retirement.
• Company pensions: If you have access to a traditional pension plan, it can offer a steady income stream during retirement. Pensions are usually funded by employers and provide regular payments based on years of service and salary history.
• Rental income: Investing in rental properties can generate passive income to supplement Social Security benefits. Real estate investments can appreciate over time, and the income you generate can provide a reliable stream of funds, though it requires managing the properties and dealing with tenants.
• Annuities: Purchasing annuities can provide a guaranteed income stream for a specified period or for life. Annuities are insurance products that convert a lump-sum payment into regular disbursements, helping to ensure a stable income during retirement.
• Investments: Diversifying your investments in stocks, bonds, and other assets can help grow your retirement savings. A balanced investment portfolio can provide growth potential and income, with the flexibility to adjust your investment strategy based on market conditions and personal goals.