Americans are polarized on many issues, but there’s at least one program that continually wins nearly everyone’s support: Social Security.
It isn’t subject to the fluctuations of the stock market, it provides an inflation-adjusted income stream that retirees cannot outlive — and it has been a crucial piece of the social safety net since President Franklin D. Roosevelt signed it into law in 1935.
President-elect Donald J. Trump has pledged to protect the program, but many policies he proposed on the campaign trail would weaken its already frail finances, depriving it of much-needed revenue. And plenty of influential Republicans have long called for cuts to the program.
So when we asked our readers if they had money-related questions in the wake of the presidential election, many people responded with concerns about whether their monthly checks were at risk.
Here’s a selection of their top questions, answered by experts, along with some background on the state of play.
Which of the president-elect’s policies could hurt Social Security’s financing?
Social Security has faced a financing shortfall for years, in part because of demographic shifts. More retirees are collecting benefits for longer periods, and a declining birthrate means fewer workers contributing to payroll taxes, the primary source of Social Security funds. And a larger share of the country’s income base is not subject to the tax compared with years past.
The trust fund that pays retiree benefits is projected to be depleted in 2033. At that point, tax revenue will be enough to pay 79 percent of scheduled benefits. If nothing is done, beneficiaries would see their checks shrink 21 percent.
Potential fixes include raising revenue (by increasing taxes), trimming benefits or employing some combination therein, all of which require congressional approval.
But Mr. Trump’s campaign proposals thus far would put the program’s finances on even shakier ground, and “dramatically worsen” the program’s finances, according to the Committee for a Responsible Federal Budget, a nonpartisan policy group.
Mr. Trump has proposed cutting various taxes that help pay for the program, including ending taxes on overtime pay and tips. He also wants to end the taxation of Social Security benefits — a move that would put more money into retirees’ pockets but eliminate another revenue source.
His plan to place steep tariffs on imports could raise prices, which means benefit payouts could also rise because they receive cost-of-living adjustments, according to the group’s analysis. Deporting unauthorized immigrants, another Trump promise, would cut the number of immigrant workers paying into the program.
If Mr. Trump’s policy proposals are enacted and accelerate the trust fund’s depletion, does that mean I should take my benefit check early, even if I had planned on waiting?
No.
The longer you wait to start collecting Social Security, the higher your check will be for life — and if you can wait, you should. Though you can claim benefits as early as age 62, it will cost you. Taking benefits before your “full retirement age,” as defined by the program, results in a permanent benefit reduction, and Social Security and policy experts strongly caution against making a decision rooted in political anxiety.
“When to claim Social Security retirement benefits is one of the most important decisions a person can make that impacts their financial security in retirement,” said Jason Fichtner, chief economist at the Bipartisan Policy Center, a policy group, who has held several positions at the Social Security Administration. “That said, don’t let worry over the discussion of trust fund depletion, or President-elect Trump’s Social Security campaign policies, change your decision on when to claim benefits.”
Let’s consider the worst-case scenario: Imagine that Mr. Trump’s policies are installed, deprive the trust fund of revenue and move up the trust fund’s depletion date by a few years. That forces Congress to find a way to shore up the program to avoid deep benefit cuts for all beneficiaries. But even if a congressional fix-it plan did trim benefits, people 55 and older would probably not be affected.
“People that are close to retirement are likely to be grandfathered from any significant benefit cut,” said Alicia Munnell, director of the Center for Retirement Research, “and grabbing benefits early means people are locking themselves into low monthly benefits for life.”
The income difference can be significant. Consider a person who turns 62 this year, and who would receive a monthly benefit of $2,000 at the full retirement age of 67. If the person starts claiming benefits this year, at 62, the paycheck would be cut by 30 percent to $1,400 (to account for the presumably longer period for receiving benefits).
The payoff for waiting can be huge. If the person holds off until age 70, the monthly amount will be $2,480 — or about 77 percent more than the monthly check received at age 62.
Of course, not everyone can afford to wait that long. But monthly benefits are roughly 8 percent higher each year you wait to claim past age 62, experts said.
Workers will pay Social Security (payroll) taxes on income up to $176,100 in 2025. To raise more revenue, why can’t we just raise the cap on payroll taxes?
Social Security was designed to be self-sufficient. It has a dedicated revenue source from payroll taxes, which workers split with their employers. Each pays 6.2 percent on earnings up to $176,100 next year, for a total of 12.4 percent. Self-employed workers pay the entire amount.
But the payroll tax is now imposed on a smaller share of the nation’s total wage income, thanks to income inequality — since the 1980s, wages grew much faster for high earners, which meant an ever growing share of their income wasn’t subject to the tax.
In 1983, the payroll tax was imposed on about 90 percent of the United States’ wage income. But it had shrunk to about 82.5 percent by 2000, which is about where it has remained in recent years.
“Growing wage inequality has put more and more earnings outside the reach of Social Security tax and is the largest factor behind the deterioration in Social Security’s financial outlook since 1983,” said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, who also held various posts at the Social Security Administration.
So what if the cap is raised?
About 6 percent of workers have earnings above the cap now, said William Arnone, chief executive emeritus at the National Academy of Social Insurance. If the cap were raised to cover an estimated $346,500 of income this year, the payroll tax would again cover about 90 percent of the nation’s wage income, according to the chief actuary’s office at the Social Security Administration.
Raising the cap to that level gradually, over the next decade, would eliminate about 24 percent of the program’s projected financing shortfall (assuming top earners get full benefit credits for the additional tax they paid in).
If the cap were gradually lifted altogether, it would close about 53 percent of the shortfall (also assuming top earners get full benefit credits). If higher earners received no extra benefit credits, it would close 73 percent of the shortfall.
But that’s just one fix — there are a variety of proposals to shore up the program, using different levers to varying degrees. The payroll tax could be slightly increased, for example.
Why are payroll taxes capped anyway?
Social Security is an earned benefit — and the program’s founders believed that tax contributions should be linked to those benefits.
“As the program is currently designed, if there were no cap, those with very high incomes would receive a very high benefit,” Mr. Fichtner, from the Bipartisan Policy Center, added.
Many people favor expanding the wage base or eliminating the cap — but there’s some disagreement on how much, if anything, to pay out to the highest earners in return. Paying them nothing, policy experts say, could eventually weaken support for the program.
“Everyone has a stake in it, and you get a return on every dollar you put into it,” Mr. Arnone said. “If you were to raise the wage base or eliminate it,” without providing something in return, he added, it would “violate a very important premise.”
What will happen to my Social Security Disability Insurance benefit?
The trust funds for retirement benefits and disability benefits are separate.
Though the retirement fund’s surplus is projected to run dry in 2033, the disability trust — for people with limited or no ability to work — is fully funded through at least 2098.
If Congress wanted to pull some of that money from the disability pot to replenish the retiree fund, it would need to pass a law to allow the transfer.
“While Congress may tap into the disability trust fund to buy some time for Congress to act to legislate changes to the retirement program, there will be a lot of political pressure to avoid harming disabled beneficiaries,” Mr. Fichtner said.
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