3 Ways President-Elect Donald Trump May Change Social Security and Their Consequences for Retirees

The Motley Fool
Updated
Mitrade
coverImg
Source: DepositPhotos

We're just days away from a second Trump administration entering the White House, and like all political transitions, we can expect changes once he takes office. Some of the most interesting ones for retirees could be those related to Social Security.

The program is in danger of benefit cuts in about a decade, and many people are disappointed with the way its buying power has declined over the years. While it may not be the most important issue on Trump's agenda, he's made a few comments about changes he'd like to make that could directly or indirectly affect Social Security. Here's a look at three of the most significant and how they could affect seniors.


Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day.


Person sitting at kitchen table looking at smartphone.


Image source: Getty Images.


1. Eliminating Social Security benefit taxes

In a social media post, Donald Trump said seniors shouldn't pay any taxes on Social Security. He was referring to the Social Security benefit taxes that seniors owe if their incomes exceed certain thresholds.


Trump can't enact a change like this on his own. Congress would have to pass a law making this change. If it did, it would increase the benefits for many retirees on Social Security, at least for the next few years.


However, this strategy would remove one of only three funding sources for the program, leaving it reliant on Social Security payroll taxes and interest income from rapidly depleting trust funds. The latest projections show that the trust funds will likely be depleted in 2035. If the government can't increase the program's funding, it would have to slash benefits by 23% in about a decade. Getting rid of benefit taxes would accelerate the trust fund depletion, which could put seniors at risk of sooner and more significant benefit cuts.


2. Eliminating income tax on tips and overtime


Another Trump proposal involves eliminating income tax on tips and overtime pay. On the one hand, this move would benefit those who depend on tips and overtime to make ends meet, because they'd have less money withheld from their checks for taxes. But we run into a similar problem as we have with eliminating benefit taxes.


If the government didn't tax this income, that would decrease the Social Security payroll tax income that serves as the program's primary source of funding. This too could accelerate the trust fund depletion date.


This move could also reduce the retirement benefits these workers are entitled to later. The Social Security Administration only counts income you've paid Social Security taxes on when calculating your benefit. If the IRS stops taxing tips and overtime, the Social Security Administration won't consider this information when determining the size of their checks.


3. Restricting immigration and imposing higher tariffs on imports


Trump has also floated the idea of restricting immigration to the U.S. and imposing higher tariffs on imports to encourage people to buy more American-made goods. There could be some benefit to American companies if this were to happen, but as with the other two points we've already discussed, there'd be unintended consequences as well.


Immigrants also pay into Social Security. If we restrict the number of immigrants paying into the program without a proportionate increase in the number of American workers paying in, we're reducing the Social Security payroll tax and thus the funding to the program.

Tariffs could also lead to higher costs, which could lead to higher inflation. This would also increase the cost-of-living adjustments (COLAs) on Social Security benefits. But many people feel the COLAs are inadequate, so some loss in buying power is still likely over time.


Social Security's issues aren't easy for any president to solve, which is part of why they're hanging around. We don't know which, if any, of Trump's proposals will pass in his second term. But understanding their potential implications on Social Security and taking steps to make ourselves less reliant on its benefits can help us all be more prepared for the future.


The $22,924 Social Security bonus most retirees completely overlook


If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

goTop
quote
Do you find this article useful?
Related Articles
placeholder
Trump announced a 35% tariff on Canadian goodsTrump announced a 35% tariff on Canadian goods, effective August 1, 2025.
Author  Cryptopolitan
Yesterday 06: 38
Trump announced a 35% tariff on Canadian goods, effective August 1, 2025.
placeholder
Trump says Powell should ‘resign immediately’ if he lied to CongressPresident Donald Trump said during a Cabinet meeting on Tuesday at the White House that Jerome Powell should resign immediately if allegations that he misled Congress turn out to be true.
Author  Cryptopolitan
Jul 09, Wed
President Donald Trump said during a Cabinet meeting on Tuesday at the White House that Jerome Powell should resign immediately if allegations that he misled Congress turn out to be true.
placeholder
Trump will slap an extra 10 percent tariff on any country backing BRICS’ anti-American stanceTrump has announced that any nation siding with what he called “anti-American policies” of the BRICS group will face an extra 10 percent tariff on imports from the United States. “Any country aligning themselves with the Anti-American policies of BRICS will be charged an ADDITIONAL 10% tariff. There will be no exceptions to this policy,” […]
Author  Cryptopolitan
Jul 07, Mon
Trump has announced that any nation siding with what he called “anti-American policies” of the BRICS group will face an extra 10 percent tariff on imports from the United States. “Any country aligning themselves with the Anti-American policies of BRICS will be charged an ADDITIONAL 10% tariff. There will be no exceptions to this policy,” […]
placeholder
Trump slams Elon over EV mandate, NASA request, and party betrayalDonald Trump, from inside the White House, took a blowtorch to Elon Musk on Sunday through a post on Truth Social.
Author  Cryptopolitan
Jul 07, Mon
Donald Trump, from inside the White House, took a blowtorch to Elon Musk on Sunday through a post on Truth Social.
placeholder
Non-Farm Payrolls Deflate Rate Cut Hopes with 147,000 New JobsOn Thursday in the US, a stronger-than-expected June non-farm payroll report dashed hopes for a rate cut in July.
Author  TradingKey
Jul 04, Fri
On Thursday in the US, a stronger-than-expected June non-farm payroll report dashed hopes for a rate cut in July.
Real-time Quote