What Their Social Security Plans Mean For Your Future – Forbes Advisor – Technologist

Both Vice President Kamala Harris and former President Donald Trump have vowed to save Social Security. Neither, though, have put forward a serious proposal to do so.

That’s a bit of a problem, especially for the 40 million voters over the age of 65.

The Social Security Trust Fund is on pace to run dry in about nine years, which would result in a more than 20% benefit cut for retirees. Since roughly half of beneficiaries rely on Social Security for at least half of their retirement income, that’s a problem.

“The financial situation of Social Security is getting more and more dire,” says Richard Johnson, the director of the program on retirement policy at left-leaning think tank the Urban Institute. “Both candidates are saying they’d save Social Security, but it’s not clear what they mean.”

We try to make sense of what each candidate may do should they be elected, and consider how Social Security’s financial health may be restored in the years to come.

Social Security Facts

Before reading a slew of ideas to save Social Security, it’s useful to have a sense of what’s going on now.

Fact #1: Social Security is very important for most people. Gallup illustrates this point with an interesting poll that shows almost 80% of those between the ages of 65 and 80 say they have enough money to live comfortably.

When this same cohort was asked 20 years ago whether they believed they would have a secure retirement, just 54% of Americans said they would.

What accounts for this difference? Well, 58% of current retirees said that Social Security is a major source of income, far outstripping pensions or 401(k)-type plans. However, just 35% believed 20 years ago that Social Security would be so important.

Fact #2: The Social Security Trust Fund is running dry. One reason why so many current non-retirees have a dour outlook on Social Security’s prospects is that every year the news is the same: the Social Security Trust Fund will soon run out of money.

The 2024 Social Security Trustees Report shows that the Old-Age and Survivors Insurance (OASI) trust fund assets will deplete in 2033, at which point beneficiaries would receive a 21% benefit cut. (The remaining benefits would be paid out via the payroll taxes of current workers).

That means that a 56-year-old who planned on taking their Social Security benefits at 65 is justified in being pessimistic.

Fact #3: Social Security is progressive. Lower earning Americans see more of their income replaced by Social Security benefits than those with higher earnings.

A 2023 report from the Social Security Administration looked at various hypothetical workers and found that someone born in 1957 with average career earnings of almost $16,000 (in 2022 dollars) would see more than 58% of their income replaced by Social Security. Someone who averaged an annual income of $156,000, though, would see less than 21% of their income replaced.

To make matters more confusing, Social Security only taxes workers on their first $168,600 (in 2024) in earnings. Each extra dollar of income doesn’t face a Social Security tax. This helps limit the amount of benefits higher earners can receive, but also leads to the impression that those with an upper class income aren’t paying their fair share.

Harris’s Social Security Plan

Vice President Harris hasn’t yet outlined how she plans on making Social Security more solvent, though the 2024 Democrat platform declared that a Harris administration will “strengthen the program and expand benefits by asking the wealthiest Americans to pay their fair share.”

This goal dovetails with a plan the Biden/Harris team produced during the 2020 election, which proposed raising benefits for lowering earners (setting a higher special minimum benefit, which would provide a boost for older retirees and chain cost-of-living adjustments to a fast-growing index), while raising taxes on wealthier earners.

It would do this by creating a “donut hole” that would evaporate over time. This would work by making Americans earning more than $400,000 subject to Social Security taxes (without higher benefits), while keeping the taxable maximum level unchanged.

Over time, this donut hole would dwindle to nothing as the maximum taxable level rises with inflation, resulting in all wages eventually being subject to taxes.

While the plan would improve the financial outlook for Social Security, according to the Penn Wharton budget model, it would still leave the program with a gaping deficit that would need to eventually be remedied. (It’d also lower economic growth.)

Still, the plan made little progress over the past four years, and it’s unclear whether it, or some version of it, will be a priority in a Harris administration.

Trump’s Social Security Plan

Former President Trump has spent much of the current campaign defending himself from incorrect claims that he plans to cut Social Security benefits. (Though he has made some incorrect claims of his own.)

He has made a few positive proposals for Social Security, though some are controversial.

In their 2024 party platform, Republicans said they will, “restore economic stability to ensure the long-term sustainability of Social Security.” Essentially, by facilitating a more productive economy, the claim goes, they will improve Social Security’s viability.

Even if Trump makes good on his plan to grow the economy, such as expanding oil and gas drilling in Alaska as Trump promised last year, Social Security is facing hard demographic truths: There are simply too many people retiring and too few workers to support them. A little extra economic growth is unlikely to change that picture in any real way.

More recently, Trump promoted the idea of nixing Social Security benefits from taxation, which happens when an individual or couple makes more than a certain amount of earned income.

For instance, those who file a joint return and earn more than $44,000 in combined income (which is calculated by adding your adjusted gross income, nontaxable interest and half of your Social Security benefits) will see 85% of their Social Security benefits taxed.

Trump’s plan will undoubtedly be popular among the 40% of Social Security recipients who pay taxes on their benefits, representing 4% of Social Security’s revenue in 2022.

However, it is unpopular with analysts from across the political spectrum for precisely that reason: taking away so much revenue will only hasten Social Security’s collapse.

“[C]oming out with a one-off proposal to eliminate all taxation of Social Security benefits is supremely unhelpful,” noted Alicia Munnell, director of the Center for Retirement Research at Boston College, in a recent post.

What Will Happen to Social Security?

Despite the candidates fledgling proposals, there are some signs of a potential compromise at some point in the future that would sustain Social Security.

Munnell, for instance, acknowledges that income thresholds for benefit taxation should be indexed to inflation (they currently aren’t) and that the top rate (85% of benefits) is too high. Perhaps not abolishing benefit taxes, then, but reforming them.

Republicans in Congress, meanwhile, have favored a plan that would rely, in part, on reducing benefits for higher-income workers, as well as limiting the cost-of-living adjustments for those better off. That isn’t logically inconsistent with the Biden/Harris plan to raise Social Security taxes on high earners without giving them commensurate benefits.

Of course, the two parties are still far off. Republicans in Congress have also favored raising the full retirement age, and don’t want to raise taxes. That is, impose cuts.

Democrats seem to favor a more generous system, but one where the higher taxes on richer Americans would still not leave the program solvent.

Ultimately, both parties will need to agree on some combination of tax increases and benefit cuts to stave off a cataclysmic event in 9 years that will drop millions of vulnerable seniors into poverty. There are no shortages of potential solutions to fixing, or at least improving, Social Security’s health.

Just don’t hold your breath.