Trump Could Eliminate Social Security Taxes: 3 Reasons Retirees Shouldn’t Claim Social Security Until After Election
Former President and Republican presidential nominee Donald Trump has been floating several tax ideas during the campaign, one of them being eliminating federal taxes on Social Security benefits. The move — if Trump wins — could impact millions of retirees. Now, one of the questions for many of them is whether it would be more beneficial to wait until after the election to start claiming benefits.
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“Seniors should not pay tax on Social Security,” Trump posted on July 31 on Truth Social.
He also reiterated his stance in an August 7 Fox interview, saying: “People on Social Security are being killed, and one of the things I’m doing is no tax for seniors on Social Security, and I’ll get it done quickly,” according to Newsweek.
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How Could Trump’s Proposal Help Retirees?
Trump would eliminate these taxes, which have been in place since the 1980s and which affect 40% of people who receive them, according to the Social Security Administration (SSA). Currently, individuals pay them if combined income (“50% of your benefit amount plus any other earned income”) is more than $25,000 a year, or $32,000 a year filing jointly, according to the SSA.
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Meanwhile, if your combined income is more than $34,000, “up to 85% of your benefits may be taxable.”
For example, “a single filer who collects the average annual Social Security benefit of $22,884, but whose total income is $50,000, would be taxed on 85% of their benefits, or $19,451. Only $3,433 of their Social Security income would be tax-free,” CBS News explained,
Removing these taxes could be a tremendous help for many retirees and non-partisan organizations — such as AARP — are also in favor of such a plan.
“People with low and moderate incomes should be exempt from paying tax on their benefits,” AARP said.
To put this in context, removing these taxes would lower taxes by an average of $550 for households, according to the Tax Policy Center. For retirees whose income is between $32,000 and $60,000, they would get a median tax cut of $90, while those tith incomes of $5 million or more would get an average tax cut of $2,500 in 2025.
“But as a share of after-tax income, the biggest beneficiaries would be middle- and upper-middle income households, those making between about $63,000 and $200,000,” the Tax Policy Center added.
Against this backdrop, here are reasons why seniors should wait after the election to claim their benefits.
It Could Be Easier for Retirement Planning
Dana Anspach, CFP, founder and CEO, Sensible Money, who is “100% in favor of eliminating taxes on Social Security,” argued that the formula governing the taxation of Social Security is undeniably complex and not currently indexed to inflation.
“As a retiree’s sources of income change from year to year, it results in inconsistent tax treatment,” she said.
She added that middle-income retirees can find themselves paying a disproportionate share of taxes as they transition into retirement and eliminating these “would greatly simplify retirement planning for many retirees.”
Worth the Wait for Seniors Who Can Afford It
Andrew Latham, CFP, managing editor at Supermoney.com also said that Trump’s proposal would provide financial relief to many retirees who struggle with day-to-day expenses.
“Seniors who can afford to wait might consider waiting this out and seeing how it all unfolds,” he said. “In any case, waiting is often advisable, especially for those in good health, as it generally results in higher lifetime benefits.”
This was echoed by several experts who said that whether you should wait or not is ultimately a personal decision.
If you are not yet 70 years old, it can make sense to wait to start collecting benefits regardless of Trump’s campaign pledge because your monthly benefits will be higher, said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart
She added that seniors should also remember that a campaign promise from a candidate is not a sure thing.
“Keep in mind that a plan would have to pass through Congress and that is far from certain,” she added.
Wait, But Have a Solid Plan
Trump’s proposal has sparked a lot of interest, but the details are still unclear, some experts said.
In turn, while waiting until after the election to claim Social Security benefits might seem appealing if these tax changes happen, it’s important to remember that policy changes are uncertain.
“Making retirement decisions based on what might happen could be risky,” said Devin Carroll, founder and lead advisor, Carroll Advisory Group.
What’s more, if people choose to delay Social Security benefits until after the election, they may be waiting longer than expected for the policy change and potentially miss out on payments.
“If President Trump wins, he will not take office until January of next year. The policy change would happen at the earliest Q1 of 2025 -and that’s assuming no legal challenges,” said Thomas Savidge, research fellow at the American Institute for Economic Research.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Trump Could Eliminate Social Security Taxes: 3 Reasons Retirees Shouldn’t Claim Social Security Until After Election