For the last 23 years, national pollster Gallup has surveyed retirees to gauge their reliance on America's top retirement program, Social Security. Over that time, up to 90% of respondents -- including 88% in 2024 -- have noted that their Social Security checks account for a "major" or "minor" source of income. Put another way, very few retirees would be able to make ends meet without Social Security.
Gallup's finding is what makes the following statement so unnerving: Social Security is in trouble.
Although this leading program is in absolutely no danger of going bankrupt or becoming insolvent, the prospect of sizable benefit cuts in the not-too-distant future is very real. The American public is counting on its elected officials to fix what ails this program -- and that all starts in the Oval Office with either Donald Trump or Joe Biden, depending on what happens on Election Day.
Former President Donald Trump speaking to reporters. Image source: Official White House photo by Shealah Craighead.
Sweeping benefit cuts of up to 21% may await retired-worker beneficiaries
The future of Social Security has been in flux for four decades. Since 1985, the annually released Social Security Board of Trustees Report has cautioned that long-term revenue collection (i.e., the 75 years following the release of a report) would be insufficient to cover outlays. The magnitude of this deficit has grown over time.
In 2024, the Board of Trustees estimated that Social Security is staring down a long-term funding shortfall of $23.2 trillion.
Moreover, the Old-Age and Survivors Insurance Trust Fund (OASI), which doles out benefits to 51 million retired workers and around 5.8 million survivor beneficiaries each month, is forecast to deplete its asset reserves by 2033. If the OASI's asset reserves are exhausted, sweeping benefit cuts of up to 21% may be necessary to avoid any further reductions through 2098.
Despite online myths and misconceptions that lay the blame on Congressional theft and undocumented workers receiving traditional benefits, the financial maelstrom Social Security is facing has everything to do with ongoing demographic changes. In no particular order, the primary culprits include:
- A more-than-halving in net legal migration into the U.S. since 1998.
- A historically low U.S. birth rate, which threatens to reduce an already pressured worker-to-beneficiary ratio.
- Rising income inequality, which has allowed more earned income than ever to escape payroll taxation.
Shoring up Social Security for current and future generations starts at the top. Unfortunately, the proposals offered by presidential candidates Donald Trump and Joe Biden fall short of the mark.
Sweeping benefit cuts may be necessary if the OASI's asset reserves are exhausted. US Old-Age and Survivors Insurance Trust Fund assets at end of year data by YCharts.
Donald Trump's hands-off approach kicks the can on a serious issue
To be fair, it's difficult to judge Donald Trump's "plan" for Social Security when neither he nor his campaign have officially proposed one. Though the former president has previously opined that cost-cutting for entitlements is something that should be on the table, he's repeatedly pledged to leave Social Security alone during multiple speaking events ahead of the 2024 election.
While a hands-off approach isn't going to cost Donald Trump voters, doing nothing is not a viable solution to Social Security's weakening financial foundation. As noted, the estimated long-term funding deficit is growing rapidly, and fiscal policy tax cuts aren't going to fix it.
Even if Donald Trump were to approach "fixing" Social Security through various entitlement reductions, such as the gradual raising of the full retirement age, the former president's goal of strengthening the program would come up short.
Efforts to reduce outlays would play out over many decades. In other words, gradually raising the full retirement age wouldn't address the OASI's asset reserve shortfall, which is estimated to be nine years away. While Republican lawmakers are often looking to the horizon, they're missing the more immediate issue that could result in benefit cuts come 2033.
President Joe Biden delivering remarks. Image source: Official White House photo by Hannah Foslien.
Joe Biden's plan to tax the rich ignores long-term demographic shifts
On the other end of the spectrum, Joe Biden wants to raise revenue by taxing the rich and redistributing some of this extra income to lifetime low-earners and aged beneficiaries.
Though you can read about Biden's four-point Social Security plan in greater detail, the gist of his proposal includes:
- Reinstating the 12.4% payroll tax on earned income above $400,000 (the maximum taxable earnings cap in 2024 is $168,600).
- Changing the cost-of-living adjustment (COLA) measure from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E).
- Increasing the special minimum benefit to 125% of the federal poverty level.
- Providing a gradual increase to the primary insurance amount for aged beneficiaries (beginning at age 78 and continuing through age 82).
Although Biden's Social Security proposal would immediately increase revenue, points two, three, and four above would offset a significant portion of what would be gained. According to an analysis by Washington, D.C.-based think tank Urban Institute, Biden's proposal only extends the solvency of Social Security's trust funds by a mere five years.
Neither Trump nor Biden has a plan to resolve Social Security's growing cash shortfall
The grim reality for current and future retirees is that neither Donald Trump nor Joe Biden has a proposal that's going to fully resolve Social Security's long-term funding shortfall. While Biden's plan would lengthen the OASI's asset reserve depletion date by a few years, neither proposal removes benefit cuts from the table.
To add to the above, Trump and Biden lack the necessary votes to make their respective proposal(s) law. While simple majority is the deciding factor in the House of Representatives, amending Social Security will require 60 votes in the U.S. Senate. The last time either party held a supermajority of 60 seats in the upper house of Congress was 1979.
Bipartisan cooperation will be a necessity for Social Security reforms to become law. However, Democrats and Republicans couldn't be further apart in their respective approaches to strengthening America's top retirement program. Congressional Republicans won't support any plan that targets high earners, while Democrats on Capitol Hill are staunchly opposed to any proposal that reduces benefits (e.g., increasing the full retirement age).
If there's a silver lining for seniors, it's that lawmakers have a history of coming together in the 11th hour to find a middle-ground solution for Social Security. We saw this play out in 1983, with the program's asset reserves effectively running on fumes.
The Social Security Amendments of 1983 combined proposals from both parties, including a staggered increase to the payroll tax, the introduction of the taxation of benefits, and a gradual increase to the full retirement age over four decades. Cooperation on Capitol Hill is possible, but it tends to happen on a reactive, not proactive, basis.
For the time being, benefit cuts remain on the table, regardless of who wins in November.
