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Yahoo
05-07-2025
- Business
- Yahoo
Trump's Social Security Tax U-Turn — What Retirees Need To Know Now
On the campaign trail, President Donald Trump promised over and over that he wanted to end taxes on Social Security — a vow that retirees backed. However, in his 'Big Beautiful Bill,' there is no mention of his pledge. Instead, there is a proposal to give seniors over 65 a $4,000 deduction that could help lower taxes, CBS News reported. Learn More: Read Next: With the House having officially passed the bill on July 3, seniors will not get the tax break Trump guaranteed. Here's why the elimination of Social Security taxes is not in the bill, and what retirees should know. While plenty of retirees loved the idea of not paying taxes on Social Security, critics voiced concern over the unrealistic and unaffordable proposal. The Center on Budget and Policy Priorities stated it would be 'unwise' because of the cost factor, and money expert and founder of Be Fluent in Finance Andrew Lokenauth agreed. 'Removing Social Security taxes would've cost the program about $45 billion annually,' he said. 'The program's already facing serious funding issues, and taking away this revenue stream would've been like throwing gasoline on a fire.' He added, 'From what I've seen working with retirement planning, the Social Security trust fund's gonna run dry by 2033, and removing the tax would've made that happen even faster. The math just didn't work — and I think Trump's team knew it.' Be Aware: It's clear Trump broke his promise and is trying to rectify it with a $4,000 deduction called the 'enhanced deduction for seniors,' per CBS. According to Lokenauth, it can help some retirees. 'The temporary standard deduction increase is actually pretty significant for lower-income seniors,' he said. ' I worked with a client last month who'd benefit about $880 annually from this change — she's single, 68 and makes about $40K.' He went on to explain that, 'It's not as generous as eliminating Social Security taxes completely — that could've saved some retirees $2-3K annually — but it's targeted at folks who need it most.' But the concession wouldn't help everyone on Social Security. The maximum Social Security benefit in 2025 is $5,108/month, or $61,296 a year. 'If a retiree has even modest supplemental income — from a pension, IRA withdrawals or rental income — they're likely hitting the 85% taxable range, so no tax relief on Social Security means many retirees are handing Uncle Sam more of their fixed income than they expected,' Peter Diamond, a Federally Licensed Tax, Accounting, Real Estate, and Structure and Certified Bankability Expert® explained. With that in mind, Diamond said most retirees don't have other revenue sources. 'They're not flipping properties or trading options on their phones,' he said. 'They're living off what they saved, and Social Security is often the biggest piece. So when a campaign says you won't be taxed, then quietly drops it later? That's not just a political pivot — it's a punch to the wallet.' A major thing to note is that if Social Security is your only income, it's likely you won't pay federal tax. 'But once you hit certain income thresholds, the IRS starts dipping its hand in,' Diamond said. As of 2025, according to T. Rowe Price: If you're single and your combined income (that's adjusted gross income + nontaxable interest + 50% of your Social Security) is: Over $25,000, up to 50% of your benefits may be taxable. Over $34,000, up to 85% may be taxable. For married couples filing jointly: Over $32,000, up to 50% is taxable. Over $44,000, up to 85% is taxable. According to Lokenauth the income thresholds haven't changed since the 80s, which is 'nuts.' 'Due to inflation, about 50% of seniors now pay these taxes versus just 10% when implemented, and I see this impact every day — middle-class retirees getting pushed into higher tax brackets because these thresholds are never adjusted for inflation,' he explained. He added, 'From my experience working with retirees, most would rather see those thresholds updated than eliminate the tax entirely. That'd be a more targeted fix that wouldn't threaten Social Security's stability.' Another important key element to keep in mind regarding Social Security is knowing your strategy, meaning when you plan on collecting your benefits. The longer you wait, the higher monthly payment you'll receive. 'While you become eligible to claim your own Social Security benefits at age 62, that might not be the best filing strategy for you,' said Eric Mangold, CWS Founder of Argosy Wealth Management. This is especially true for married couples who could gain potential spousal benefits. According to Mangold, 'you should know what filing strategy makes the most sense for you and puts the most money in your pocket.' He explained, 'How you choose to file can mean the difference of tens of thousands, if not hundreds of thousands, of dollars over the course of your retirement.' There's no denying that Trump walked back his pledge to end Social Security taxes. He continued to make promises knowing the program is financially struggling, but not including the proposal in the bill was the right choice, according to Lokenauth because it would have worsened the situation. 'The program needs every revenue stream it can get,' he said. 'While Trump's original promise sounded great, it would've accelerated the program's financial problems.' Lokenauth explained, 'The standard deduction boost is actually smart policy. It helps lower-income seniors who really need it — I've seen firsthand how an extra $500 to $1000 annually can make a real difference for many of my retired clients living on fixed incomes.' Trump flipped his stance, and retirees will not receive the tax break on Social Security he vowed. While it would have been a win for middle-class retirees, it would have bankrupted the program, according to experts. Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 7 Things You'll Be Happy You Downsized in Retirement The 5 Car Brands Named the Least Reliable of 2025 This article originally appeared on Trump's Social Security Tax U-Turn — What Retirees Need To Know Now
Yahoo
23-06-2025
- Business
- Yahoo
Social Security Benefits Are an Estimated 8 Years Away From Being Slashed -- and the Cuts Are Even Bigger Than Initially Forecast
Most retirees rely on their Social Security income, to some varied degree, to make ends meet. The 2025 Social Security Board of Trustees Report is calling for an even steeper reduction to retired-worker and survivor benefits come 2033 than was forecast last year. Ongoing demographic shifts are (mostly) responsible for Social Security's financial woes. However, the longer Congress waits to implement reforms, the costlier it'll be on working Americans. The $23,760 Social Security bonus most retirees completely overlook › Social Security represents more than just a monthly check for most retirees. To many, it's a financial lifeline that surveys and studies have shown they'd struggle to make do without. For 23 consecutive years, national pollster Gallup surveyed retirees to determine how important their Social Security income was to covering their expenses. Every year, no fewer than 80% of respondents noted it was necessary, in some capacity, to cover their costs. A separate analysis from the Center on Budget and Policy Priorities found that Social Security pulled 22 million people above the federal poverty line in 2023, including 16.3 million adults aged 65 and above. If the Social Security program didn't exist, the poverty rate for this group would be nearly four times higher (37.3%, estimated) than it was in 2023 (10.1%). For lawmakers, ensuring the financial health of Social Security should be of paramount importance. But based on the latest Social Security Board of Trustees Report, America's leading retirement program is on anything but stable ground. In January 1940, the Social Security program doled out its very first retired-worker benefit. Since then, the Social Security Board of Trustees has published an annual report intricately detailing how the program generates income, as well as where every dollar in outlays ends up. But what tends to garner even more attention is the Trustees' forecasts of what's to come for Social Security. Specifically, the short- (10-year) and long-term (75-year) projections, which are regularly updated to reflect fiscal policy changes, monetary policy shifts, and an assortment of demographic adjustments. Last week, the 2025 Social Security Board of Trustees Report was released -- and it contained some rather chilling news for current and future retirees. To begin with, the program's long-term unfunded obligation continues to widen. Every annual report since 1985 has pointed to a 75-year funding deficit between projected income to be collected and forecast outlays, which includes annual cost-of-living adjustments (COLAs). In present-day dollars, discounted to Jan. 1, 2025, this 75-year deficit stood at a staggering $25.1 trillion. However, the more worrisome news is the short-term forecast for the Old-Age and Survivors Insurance trust fund (OASI). This is the fund responsible for doling out monthly benefits to retired workers and survivors of deceased beneficiaries. Beginning in 2021, the OASI began outlaying more in benefits than was being collected in income. This outflow from the OASI's asset reserves is expected to grow with each passing year. By 2033, the OASI's asset reserves are projected to be completely exhausted. Before going any further, let's make clear that the OASI doesn't need a penny in asset reserves to remain solvent and continue to pay benefits to eligible recipients. With the lion's share of Social Security income collected from the 12.4% payroll tax on wages and salary, there will always be income to disburse to qualified beneficiaries. But if the OASI's asset reserves are depleted in eight years, as the latest Trustees Report predicts, the current payout schedule, inclusive of COLAs, won't be sustainable. The Trustees are forecasting a 23% cut to payouts may be necessary for retired workers and survivor beneficiaries by 2033 -- this is up from an estimated 21% cut outlined in the 2024 Trustees Report -- to sustain monthly benefits without the need for any further reductions through 2099. With Social Security providing a financial foundation to retirees for more than eight decades, the obvious question for current and future retirees is simple: How did Social Security get into this mess? What can be said with certainty is that "congressional theft" and "undocumented migrants receiving traditional Social Security benefits," which are two common myths/scapegoats mentioned by some people online, are the wrong answers. Rather, Social Security's worsening financial outlook is a function of numerous ongoing demographic shifts, as well as inaction on Capitol Hill. Some of these shifts are well-documented and understood by the public. For example, baby boomers reaching retirement age and leaving the workforce in larger numbers are weighing down the worker-to-beneficiary ratio. Likewise, people are living longer today than they were when Social Security initially began paying retired-worker benefits in 1940. To be somewhat blunt, the program wasn't designed to dish out payments to retirees for two or more decades, as is somewhat commonplace today. But a number of these demographic shifts aren't nearly as visible -- nevertheless, they're playing a key role in weakening the program. For starters, the U.S. fertility rate (i.e., hypothetical lifetime births per woman) hit an all-time low in 2023. A laundry list of factors, ranging from people waiting longer to get married and have children, to concerns about the health of the U.S. economy, have reduced the number of children being born and will, eventually, weigh down the worker-to-beneficiary ratio. Rising income inequality is another issue for Social Security. Based on data from the Social Security Administration, approximately 90% of all earned income (wages and salary, but not investment income) was subject to the 12.4% payroll tax in 1983. By 2023, only 83% of earned income was subject to this program-funding tax. In simple terms, the wages and salaries for high earners have been increasing at a faster pace than the National Average Wage Index, which determines the upper range of earned income exposed to the payroll tax. In short, more earned income is escaping the payroll tax as time passes. Insufficient net migration into the U.S. has been problematic, too. Social Security relies on younger people migrating to the U.S. and contributing to the program for decades via the payroll tax before earning a retirement benefit for themselves one day. Since 1997, the net migration rate into the U.S. has dropped off dramatically. The final culprit is the aforementioned lack of action by lawmakers in Washington, D.C. Although plenty of bills have been proposed, the cavernous ideological gap between Democrats and Republicans on Capitol Hill as to how best to strengthen Social Security has led to an ongoing stalemate. If there's a silver lining here, it's that lawmakers do have a knack for coming to Social Security's rescue in the 11th hour. But the longer Congress waits to tackle this issue, the costlier it's going to be on working Americans to fix. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 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. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security Benefits Are an Estimated 8 Years Away From Being Slashed -- and the Cuts Are Even Bigger Than Initially Forecast was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
