Here's what a Trump presidency means for Social Security

Social Security was arguably the biggest issue on the minds of senior citizens heading into this election season, and for good reason. Based on the most recent data released from the Social Security Administration, more than 60% of seniors currently receiving Social Security rely on their benefit for at least half of their monthly income. Seniors understood fully that the next president of the United States -- who we now know to be Donald Trump -- would have the opportunity to shape the future of America's most important social program.

The reason Social Security needs some serious changes involves two ongoing demographic changes. First, baby boomers are retiring at an average pace of more than 10,000 people per day, meaning the worker-to-beneficiary ratio is dropping. In simpler terms, there's simply not enough payroll tax revenue being generated to counteract the growing retirement benefits being paid out to beneficiaries leaving the workforce. The second factor is that the average American life expectancy has increased by about nine years since the mid-1960s. Combined, these demographic shifts are putting a major strain on Social Security.

According to the 2016 Social Security Board of Trustees report, the Trust that holds more than $2.8 trillion in spare cash could be depleted by the year 2034. If this were to happen, an across-the-board benefit cut of up to 21% might be needed to sustain the program through 2090. This isn't a promising scenario for the aforementioned majority of seniors who need Social Security income to meet their monthly expenses.


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Here's what a Trump presidency means for Social Security

So what exactly does Donald Trump's presidency do for Social Security? On the surface, it doesn't look like much at all.

Trump's campaign made little mention of Social Security, which is surprising, given that Republican presidential candidates tend to cater to seniors, a group they rely on heavily for votes. Trump's sole position during his campaign was that he would honor the pledge made by America to ensure that seniors receive the benefits they're due.

RELATED: Here are 10 Social Security rules everyone should know:

10 Social Security rules everyone should know
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10 Social Security rules everyone should know

6.2 percent payroll tax

Most workers pay 6.2 percent of their earnings into the Social Security system, and employers match this amount. Self-employed workers contribute 12.4 percent of their income to Social Security. You can see how much you have paid in and check that your earnings have been recorded correctly with a my Social Security account.

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$127,200 tax cap

This is the Social Security maximum taxable amount of earnings in 2017. Earnings above the tax cap aren’t taxed by Social Security or used to calculate retirement benefits. Workers who earn more than $127,200 in 2017 will notice a bump in their paycheck when Social Security taxes stop being withheld.

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35 years of earnings

Your Social Security payments are calculated using the 35 years in which you earn the most. If you don’t work for at least 35 years, zeros are averaged in and will reduce your retirement payments. Working for more than 35 years can improve your payments because your lowest earning years could be dropped from the calculation.

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$1,360 average payment

Retired workers will receive an average Social Security payment of $1,360 per month in 2017. Retired couples bring in an average of $2,260 monthly. Payments are adjusted each year to keep up with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Cost-of-living adjustments have ranged from zero in 2010, 2011 and 2016 to 14.3 percent in 1980.

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Initial eligibility at age 62

Workers first become eligible to start retirement benefits at age 62. However, monthly payments are reduced by 25 or 30 percent if you claim them at this age, depending on your birth year. For example, a baby boomer who qualifies for $1,000 per month from Social Security at age 66 would get a reduced payment of $750 per month if he elects to sign up for Social Security at age 62.

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The baby boomer full retirement age is 66.

People born between 1943 and 1954 are eligible to claim unreduced Social Security benefits at age 66. The full retirement age then gradually increases from 66 and two months for people born in 1955 to 66 and 10 months for those with a birth year of 1959.

The full retirement age will increase to 67.

People born in 1960 or later become eligible for the full retirement benefit they have earned at age 67. Millennials and members of generation X need to wait a year longer than the baby boomers and two years longer than their grandparents to claim their full retirement benefit.

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Maximize your monthly payments at age 70.

Social Security payments increase each month you delay starting your payments up until age 70. After age 70 there is typically no additional benefit to waiting to sign up for your benefit. Retirees can boost their monthly payments by 24 to 32 percent, depending on their birth year, by claiming Social Security at age 70.

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$16,920 earnings limit

If you work and collect Social Security at the same time at age 65 or younger, part of your Social Security payments could be temporally withheld if you earn more than $16,920 in 2017. Beneficiaries who exceed the earnings limit will have $1 in benefits withheld for every $2 in income above the limit. Those who turn 66 in 2017 have a higher earnings limit of $44,880, and the penalty declines to $1 withheld for every $3 in excess of the earnings limit. However, once you turn 66, there’s no benefit reduction for working and claiming benefits at the same time, and your payments will be increased to give you credit for payments that were withheld in the past.

$25,000 in retirement income

If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits exceeds $25,000 ($32,000 for couples), half of your Social Security benefit becomes subject to income tax. And if these income sources top $34,000 ($44,000 for couples), income tax could be due on 85 percent of your Social Security payments.

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Rather than tackling changes to Social Security itself, Trump's pledge revolves around making changes to the individual and corporate tax structure in order to boost the growth of the U.S. economy. Having forecast GDP growth as high as 4% during his campaign, Trump believes faster growth should lead to rising wages and thus an increase in payroll tax collection.

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To accomplish this, Trump wants to implement the same simplified individual income-tax schedule previously proposed by the Republican-led House of Representatives. There would be just three proposed progressive tax tiers (12%, 25%, and 33%), with the vast majority of Americans paying less in individual income tax than they are now (assuming equal income). In theory, having more cash in hand should encourage consumption, which doesn't seem like a bad idea, considering that 70% of U.S. GDP is based on consumption.

With regard to corporate income taxes, Trump aims to cut the peak rate by more than half from 35% to 15%. At 35%, the United States has the third-highest peak corporate income tax rate in the world, behind only Puerto Rico and the United Arab Emirates. The logic goes that allowing U.S. companies to keep more of what they earn will lead them to reinvest in more jobs. It could also ignite foreign investment in the United States.

But will it work? That's the big question. On the other side of Trump's tax-cut equation is the expectation of lower revenue collection by the federal government. The Tax Foundation ran an analysis of Trump's revised tax proposal that was released in August and concluded that it would lead to a $3 trillion reduction in revenue collected over the next decade.

Furthermore, it's likely that we could see the national debt increase from its current level. Higher debt levels mean that a higher percentage of the federal budget is needed to service the interest on that debt, potentially pressuring important social programs such as Social Security, Medicare, and Medicaid.

If Trump's tax and economic plans don't deliver the growth he has suggested, then Social Security's current trajectory of a budgetary shortfall won't change one iota.


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Could a compromise be in order?

Not only does Trump's completely hands-off approach to Social Security have a low probability of fixing the programs' issues, but it's also unpopular with the American public. An informal poll conducted by The Washington Post in 2014 found that of 12 possible Social Security solutions, the two least popular essentially involved doing nothing and passing the problem further down the road.

Considering how important Social Security is to seniors and pre-retirees, it's possible that we could see a compromise between the Republican-led Congress and Donald Trump. Trump has drawn a line in the sand against raising Social Security's full retirement age, or FRA, but increasing the FRA has long been a suggestion of key Republican leaders. It also happens to be the second-most popular Social Security fix in the aforementioned Washington Post poll, trailing only raising the payroll tax earnings cap.

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Your FRA is a dynamic number that's based on your birth year, and it determines when you're eligible to receive 100% of your benefits. File for Social Security benefits before reaching your FRA, and you'll receive a monthly payment that's below full (100%). In fact, enrolling as soon as possible (age 62) could lead to a payment that's between 25% and 30% below your FRA benefit. However, wait until age 70, the age at which your Social Security benefits stop growing in value, and your monthly benefit could range between 124% and 132% of your FRA benefit.

Because people are living longer than ever, they need their benefits to last even longer. Thus, with 45% of eligible seniors claiming benefits at age 62, and roughly 60% filing for benefits before reaching their FRA, the program is becoming strained. Gradually raising the full retirement age to between ages 68 and 70 would account for longer life expectancies and encourage retirees to wait longer to file for benefits. It could even coerce some seniors in good health to work longer, thus contributing even more to payroll tax revenue.

Of course, we also know that most Democratic congressmen and congresswomen don't approve of raising the FRA. Neither does Trump at the moment, for that matter. But given the need to protect Social Security for current and future generations, a compromise isn't out of the question down the road.

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