5 Ways a Trump Win in 2024 Could Impact the Future of Social Security for Millennials
Born between 1981 and 1996, millennials are 28 to 43 years old. The oldest will be eligible for Social Security in less than 20 years. The youngest are less than 40 years away from full retirement age under current law — but current law could change dramatically if Donald Trump is reelected in November.
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“A second Trump term could herald significant shifts in Social Security funding and benefits,” said David L. Blain, CFA, founder and CEO of BlueSky Wealth Advisors, a fee-only, independent registered investment advisor (RIA). “These changes could have profound implications for millennials, possibly altering when they can retire and how much they can expect to receive. Based on past policy positions, there’s speculation about potential efforts to privatize Social Security or alter the structure to reduce the program’s long-term fiscal burden. It’s essential for millennials to stay informed and consider these possibilities as part of their broader financial planning.”
Trump Could Cut Entitlement Spending
On March 11, Trump sat with CNBC’s Joe Kernen for his first interview since becoming the GOP’s presumptive presidential nominee. He raised eyebrows by indicating he’d be willing to cut Social Security and Medicare spending, a radical departure from the positions that Forbes says he took in 2016, 2020 and during his recent primary battles.
He said, “So first of all, there is a lot you can do in terms of entitlements in terms of cutting and in terms of also the theft and the bad management of entitlements, tremendous bad management of entitlements.”
But if Trump decides to cut Social Security, how can he do it?
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He Could Raise the Retirement Age
If Trump does move to cut Social Security spending, there are several paths to that end. One is to raise the full retirement age, which is currently 67 — and his own party already has a roadmap in place.
In 2023, the House Republican Study Committee (RSC) suggested several cuts to Social Security, including raising the age at which retirees can receive full benefits to 69. The proposal would phase in the policy by increasing the retirement age by three months per year for everyone currently aged 59 starting in 2026.
If Trump were to sign off on this policy during a second term, the retirement age would reach 69 for those who turn 62 in 2033 or later, which includes all millennials.
This would impact Generation Y in another way, too. Currently, those who claim Social Security when they first become eligible at 62 receive only 70% of their full benefit. If Trump signs this policy into law, millennials who claim at 62 would receive just 61% of their full monthly payment.
According to the Senate Committee on the Budget, raising the retirement age to 69 would indirectly yet effectively cut benefits by 13% every year.
He Could Reduce Benefits Based on Income
Another way Trump could cut Social Security spending is more direct than raising the retirement age.
The RSC report suggested reducing benefits for future recipients who are currently younger than 59 and who earned $80,652 or more annually in 2023 dollars when they were in the workforce.
If Trump pursues this policy in a second term, millennials earning higher-than-average yet still relatively modest incomes could receive reduced benefits when they retire.
“In response to such uncertainties, our advice to clients, particularly millennials, hinges on diversification and proactive retirement planning beyond Social Security,” said Blain, a member of the Phi Kappa Phi Honor Society and Distinguished Honor Graduate of the United States Military Academy at West Point, who served with distinction for 10 years in U.S. Army Airborne, Ranger and Special Operations units before his career in finance. “This involves maximizing contributions to IRAs and employer-sponsored retirement plans, exploring investment opportunities for growth and considering Roth conversions.”
He Could Slash Auxiliary Benefits
The RSC report also recommended limiting and phasing out so-called auxiliary benefits for those currently younger than 59 who earned a minimum of $80,652 annually in 2023 dollars while in the workforce. The most important is the spouse’s insurance benefit, which allows spouses with no earnings of their own to receive a spouse’s benefit equal to one-half of the worker’s retirement benefit.
Here, too, millennials should use the time they have to prepare for a retirement that doesn’t depend too heavily on the social safety net.
“The premise is to build a retirement portfolio that isn’t solely reliant on Social Security benefits,” said Blain. “Given the ongoing debates surrounding Social Security’s future, such an approach ensures increased flexibility and stability, allowing millennials to navigate potential policy shifts with confidence.”
Trump Could — and Probably Will — Leave the Program Unchanged
After Trump’s CNBC interview, President Biden and others pounced on his statement as proof that he would gut Social Security if reelected. It’s an easy position to take because raising the retirement age, reducing benefits, instituting income limits and increasing payroll taxes — the last of which Trump consistently opposes — are all widely unpopular.
However, the program’s future will eventually require some combination of those outcomes.
According to the Social Security Administration, the trusts that fund the program are on pace to be depleted by 2034. When that happens, the program will depend solely on incoming payroll taxes and the SSA will be able to pay only 74% of promised benefits, shorting every millennial by more than one-quarter of their future monthly Social Security check.
Only Congressional action can remedy the looming shortfall, but since the next president and the next Congress don’t absolutely have to deal with the simmering crisis, history says they probably won’t. If elected, Trump could do what he promised in 2016 and 2020 and leave the program unchanged, passing the buck to a future president who won’t have the luxury of waiting.
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This article originally appeared on GOBankingRates.com: 5 Ways a Trump Win in 2024 Could Impact the Future of Social Security for Millennials
