As the United States heads into the next election cycle, many people are wondering what the future holds—especially retirees who are often more sensitive to shifts in economic and healthcare policies. If Donald Trump were to return to the White House, his policies could have significant implications for retirees. Here are five ways his potential next presidency could impact this important demographic.
1.Elimination of Taxes on Social Security Benefits
During his campaign, Trump proposed removing taxes on Social Security benefits, which could put more money directly into the pockets of retirees. Currently, Social Security benefits are taxed for individuals with combined incomes over $25,000 or couples filing jointly with incomes over $32,000, thresholds that have remained unchanged since the 1980s. Around 40% of retirees pay federal income tax on their Social Security benefits, so this change could provide relief for those with modest retirement incomes.
However, there’s a trade-off. Social Security benefits taxes contribute to the program’s funding, helping to maintain its solvency. If these taxes were eliminated, it could accelerate the depletion of the Social Security Trust Fund, currently projected for 2035. According to the Tax Foundation, removing Social Security taxes could push insolvency up by two years, to 2033, while Medicare’s insolvency date could move up from 2036 to 2030.
Impact for retirees: While eliminating these taxes would give retirees extra income, it may hasten the need for Social Security reform. Retirees relying heavily on Social Security may face uncertainty around long-term benefits if solvency becomes a pressing issue.
2.Accelerated Insolvency of Social Security and Medicare Trust Funds
Trump’s proposals to cut taxes on Social Security benefits and possibly tips mean less revenue flowing into these essential programs. These potential funding changes, combined with an aging population, put the Social Security and Medicare trust funds at risk of earlier insolvency.
In his 2024 campaign, Trump also suggested cuts to “waste” within entitlement programs. While no cuts to Social Security or Medicare benefits have been explicitly promised, retirees should be aware of the budgetary pressures on these programs. Any significant funding gap could potentially lead to benefit reductions, especially if Congress fails to implement other revenue-generating measures.
Impact for retirees: Reduced trust fund revenue and program insolvency risks mean retirees may see pressure to consider alternative income sources or face the possibility of reduced Social Security benefits. The uncertainty surrounding funding could create additional stress for those dependent on these programs for the bulk of their income.
3.Encouragement of Lower Interest Rates
Throughout his campaign, Trump advocated for lower interest rates, signaling he would work to influence the Federal Reserve to reduce borrowing costs. Lower interest rates would make debt cheaper across the board, potentially benefiting retirees with mortgages, credit card debt, or other loans. For instance, in a recent proposal, Trump suggested capping credit card interest rates at 10%.
Lower interest rates can also support the housing market by keeping mortgage rates affordable. This is especially significant for retirees with real estate investments or those looking to downsize or relocate. As housing affordability rises, real estate values often increase, which could enhance retirees’ home equity and create opportunities for selling or refinancing.
Impact for retirees: Retirees could benefit from reduced borrowing costs, but lower rates also have downsides. Lower interest rates often translate to reduced yields on bonds, savings accounts, and other fixed-income investments that retirees commonly rely on for steady income. Retirees may need to re-evaluate their investment strategies if yields decline.
4.Changes to Retirement and Healthcare Programs
Trump has voiced opinions on the reform of entitlement programs, including Social Security and Medicare. He has historically advocated for raising the retirement age and cutting waste in these programs. Additionally, his stance on the Affordable Care Act (ACA) and Medicaid could impact early retirees who rely on the ACA marketplace for health coverage until they reach Medicare eligibility at age 65.
If Trump makes good on his promises to overhaul the ACA, those retirees could face increased premiums or fewer coverage options. In 2020, Trump’s budget proposal also suggested that Medicaid eligibility requirements be tightened, which could affect retirees who rely on Medicaid for long-term care or additional medical support.
Impact for retirees: Retirees could face increased healthcare costs if ACA reforms restrict coverage options or raise premiums. Any structural changes to Medicaid could make it more challenging for low-income retirees to access affordable healthcare, particularly for long-term care expenses, which are substantial for many seniors.
5.Extension of the Tax Cuts and Jobs Act (TCJA) of 2017
The Tax Cuts and Jobs Act of 2017 (TCJA) introduced by Trump led to lower federal tax rates across most income brackets. Set to expire in 2025, the TCJA also increased the standard deduction, which helped simplify tax filings for many seniors. Trump has expressed a strong interest in making the TCJA provisions permanent or even expanding them, which could have positive implications for retirees.
High-income retirees and those with substantial investment income would likely benefit from extended tax cuts, while wealthier retirees may also enjoy the preservation of the doubled estate tax exemption, which the TCJA raised from $5.49 million to $12.92 million for individuals. Retirees with investment portfolios could also see gains if lower tax rates on capital gains remain.
Impact for retirees: Extending the TCJA provisions could reduce income tax burdens for retirees, allowing them to keep more of their retirement income and savings. However, permanent tax cuts might increase the national debt if not offset by spending cuts, potentially pressuring other retirement and healthcare programs.
Donald Trump’s next term could bring about policy changes with significant implications for retirees. While eliminating Social Security taxes and extending tax cuts could provide financial relief, these moves may also risk the future of the Social Security and Medicare trust funds. Additionally, lower interest rates and potential ACA reforms could impact retirees’ savings strategies and healthcare costs.
As always, retirees should pay close attention to these policy shifts and consult financial advisors to prepare for potential changes. By staying proactive and adjusting financial strategies, retirees can better navigate the potential economic impacts of the next Trump presidency.
