President-elect Donald Trump has proposed several policy changes that could impact retirees’ finances in 2025. Some of these changes may help retirees save money, while others could potentially worsen Social Security’s financial challenges. One of Trump’s proposals is to eliminate taxes on Social Security benefits for retirees with provisional incomes above $25,000 for individuals and $32,000 for couples.
This change, along with a potential extension of the 2017 tax cuts, could reduce the tax burden for many retired Americans. Thomas Kluz, managing director of an organization working with seniors, also mentioned that proposals to reduce or waive capital gains taxes could save retirees money on their investment income. Retirees participating in Medicare could see an average annual savings of $400 due to changes taking effect in 2025, such as the $2,000 cap on out-of-pocket Part D drug costs.
Additional potential policy modifications, like expanding Medicare’s ability to negotiate drug prices, could further reduce costs. However, Social Security’s future remains uncertain. The 2025 Social Security Cost of Living Adjustment (COLA) increase of 2.5%, the smallest in four years, will add about $50 per month to the average Social Security check.
While Trump’s promise to eliminate federal income taxes on Social Security benefits could save higher-income retirees more money, analysts warn that these tax breaks may come at a cost.
Proposals could change social security
Eliminating Social Security taxes could reduce the program’s revenue by about $1.6 trillion over the next decade, potentially accelerating a shortfall in the Social Security and Medicaid trust funds.
According to the 2024 annual report published by the Social Security trustees, the combined trust funds are projected to run out of money by 2035. After that, Social Security will only be able to pay around 83% of scheduled benefits at first, with this level potentially declining to 73% by 2098. Trump has not provided a detailed plan to address Social Security’s looming insolvency.
In a town hall in December 2023, he suggested that tapping into U.S. reserves would solve many of the country’s fiscal problems, including Social Security’s shortfall. However, his campaign has not provided specifics on how this idea would work. If the trust fund runs out, Social Security can’t pay out more benefits than it has money for.
Analyses show that if Congress doesn’t boost Social Security revenues, median annual benefits could drop by $5,900 (adjusted for 2022 inflation) by 2045 compared to the benefits promised under current law. The impact would hit lower-income individuals harder since Social Security makes up a larger share of their income. These potential outcomes underscore the urgent need for timely policy measures to ensure the sustainability of Social Security and protect the financial well-being of millions of Americans.
It remains to be seen whether President-elect Trump will take concrete steps to address Social Security’s biggest problem in 2025.
