Social Security as We Know It Won't Be There for Americans If This Happens

Most Americans have serious concerns about the future of Social Security. In fact, according to a recent survey from Nationwide, 79% of millennials, 81% of Gen Xers, and 66% of baby boomers worry that the popular retirement benefits program will run out of money during their lifetimes. 

That can't happen under the current system. But if President Donald Trump is reelected and follows through on one of his key campaign promises, that majority of Americans who believe funding will run out may very well end up being correct after all. 

Will President Trump kill Social Security's funding source?

Social Security's funding stream right now is a very safe one. There's a dedicated payroll tax set at 12.4% total -- with half paid by employees and the other half paid by employers. This money goes directly to Social Security, which maintains a separate budget from other federal programs as well as a trust fund from which it can draw to help pay out benefits. 

Old man sitting sadly at table by himself.

Image source: Getty Images.

President Trump said he hopes to change that, though. He has said that if he is reelected, his goal is to institute a permanent payroll tax cut. While some of his aides have walked that statement back in recent days, suggesting the scope of the changes he'd make might be more narrow, President Trump has been clear that his goal is to permanently eliminate the taxes taken out of your paycheck to fund Social Security. 

What the president hasn't said, however, is that this would defund Social Security. Instead, he's suggested financial support for the program could come from the government's general fund. And indeed, in the past, when payroll tax cuts have been instituted temporarily, Congress has made up the difference by diverting money. In fact, the general fund has transferred more than $260 billion to Social Security since 1965 to reimburse for payroll tax credits and other changes over the years.  

The problem is that previous payroll tax breaks were smaller and shorter in duration -- they didn't change the entire mechanism by which Social Security is funded. Permanently eliminating payroll taxes and making up the money from the general fund would be a whole different ball game, and one that's fraught with problems. 

Social Security currently pays out around $1 trillion in benefits to workers each year. And with the population aging rapidly, it'll be paying more in the future. Even with a dedicated funding stream, the trust fund is in danger of running going dry by 2035. If payroll tax revenue stops coming, a substantial amount of additional money will need to come out of the general fund every year. Unless other taxes are raised to compensate, making this change would blow up the federal deficit. 

With Washington going further into the red and Social Security showing up as a huge line item on its budget, that would make the program much more vulnerable. In fact, as lawmakers start to see the deficit climb and can directly blame Social Security spending for it, cuts would become almost inevitable. And without the direct link between money paid in and benefits paid out, it may be easier for lawmakers to get away with the cuts.

The bottom line is, funding the program from general revenue without a dedicated tax source would undermine the entire history of how Social Security works. That would essentially turn it into just another form of government-funded welfare vulnerable to the whims of lawmakers passing the budget, rather than a social insurance program that individuals pay into in exchange for earned benefits.

While you may get some retirement money under a program called "Social Security," if the change proposed by President Trump is made, it becomes much easier for lawmakers to chip away at funding. If that happens, the entitlement program that has kept millions out of poverty would cease to exist in its current form. 

What you should do

Social Security appears to be under serious threat. Even if President Trump doesn't change its funding source, it is facing financial problems that will be difficult for lawmakers to fix because many of the solutions are politically unpopular. 

While it's unlikely you'll get no retirement assistance from the government, you can't count on getting all the benefits you've been promised under the current plan. That means current retirees need to maintain a safe withdrawal rate so their savings will last, and should prepare for possible budget cuts if benefits end up being reduced sometime in the next 15 years or so. Those who now work should also be realistic about what Social Security will provide, and may want to get more aggressive in setting retirement savings goals. 

All Americans should review each presidential candidate's proposals on Social Security, consider them when casting their vote, and let their other elected representatives know their opinion on any proposed changes to this important benefits program. 

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