For most retirees, Social Security provides much more than just a monthly check. It represents the foundation of their retirement income and is vital to making ends meet.
For 23 years (2002-2024), national pollster Gallup has surveyed retirees to gain perspective on how important Social Security income is to their financial well-being. Every year, between 80% and 90% of respondents note their Social Security check is needed, in some capacity, to cover their expenses.
Protecting and strengthening America's leading retirement program should be at the top of every lawmaker's list on Capitol Hill -- including President Donald Trump. However, the pillars supporting this 90-year-old program are crumbling.
Although President Trump has predominantly taken a hands-off approach to Social Security, his actions should lead to two decisive changes in this leading social program in 2025.
President Trump signing a bill in the Oval Office. Image source: Official White House Photo by Shealah Craighead, courtesy of the National Archives.
Social Security is facing the prospect of sweeping benefit cuts by 2033
Sometimes when looking to the future, you have to first reflect on the past. Before digging into the changes President Trump is expected to bring to Social Security this year, it's imperative to understand how this age-old program got into this mess in the first place.
Every year since the first retired-worker benefit was mailed in January 1940, the Social Security Board of Trustees has released a report that outlines, in detail, where every dollar in income is generated and where those dollars are disbursed.
More importantly, these reports provide forward-looking assumptions regarding Social Security's financial health. These outlooks adjust annually for changes in fiscal and monetary policy, as well as demographic shifts. For the last 40 years, the Trustees have been forecasting a long-term ("long-term" being the 75 years following the release of a Trustees Report) funding obligation shortfall, which in 2024 grew to $23.2 trillion.
What's even more worrisome is the expected depletion of the Old-Age and Survivors Insurance Trust Fund's (OASI's) asset reserves by 2033. Although Social Security is in no danger of bankruptcy or insolvency -- generating over 91% of its income from the 12.4% payroll tax on earned income ensures the program can't go bankrupt or become insolvent -- the current payout schedule, inclusive of cost-of-living adjustments (COLAs), doesn't appear sustainable.
If the OASI's asset reserves are completely exhausted in eight years, retired workers and survivor beneficiaries would see their monthly checks reduced by 21%.
The blame for Social Security's financial woes has to do with ongoing demographic shifts. While people on social media message boards are quick to place the blame on myths like congressional theft or undocumented migrants, the reality is that rising income inequality, a historically low U.S. birth rate, and a big-time reduction in net legal migration into the country, are responsible for Social Security's long-term funding issues.
The OASI's asset reserves are an estimated eight years away from being depleted. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.
President Trump is going to change Social Security
While on the campaign trail and following his November victory, President Trump reiterated that he would not touch Social Security. In short, he wouldn't propose measures that would involve sweeping benefit cuts.
But this promise isn't entirely truthful. Based on various actions and historic precedent, Trump is set to change Social Security in two unique ways in 2025.
Efficiency-based cost reductions
Although President Trump won't be proposing any sweeping payout cuts, his actions over the previous six weeks, coupled with all four of his budget proposals during his first term as president, suggest that efficiency-based cost reductions are coming.
In an interview with Meet the Press in December, the president candidly noted, "I said to people we're not touching Social Security, other than we make it more efficient. But the people are going to get what they're getting."
During his first term in the White House, Trump's presidential budget proposals called for efficiency-based cost reductions to Social Security. The aggregate savings of these proposals were estimated at:
- $72 billion from fiscal year (FY) 2018 through FY 2027 (the federal government's fiscal year ends on Sept. 30).
- $64 billion from FY 2019 through FY 2028.
- $26 billion from FY 2020 through FY 2029.
- $24 billion from FY 2021 through FY 2030.
One of the more prominent examples of how these cost reductions would be achieved is by halving the retroactive benefits workers with disabilities would receive to six months from the current 12 months.
Since being inaugurated on Jan. 20, 2025, Trump has signed an executive order that directs government agencies to reduce their staff and cut costs. The Social Security Administration (SSA) is expected to reduce its staff by 7,000 workers to 50,000, as well as shutter some of its locations.
But it's important to recognize that the SSA's administrative expenses only amounted to $7.2 billion of the program's $1.392 trillion in outlays in 2023. Reducing the SSA's workforce and ending some of its office leases won't make much of a dent in the program's $23.2 trillion long-term funding shortfall, or meaningfully address the OASI's impending asset reserve exhaustion in eight years.
Image source: Getty Images.
Tariff policy will notably influence Social Security's 2026 COLA
The other way President Donald Trump is going to decisively alter Social Security is by influencing the prevailing rate of inflation in 2025, which in turn will impact the program's 2026 cost-of-living adjustment.
Trump's ability to influence the U.S. inflation rate has everything to do with his implementation of tariffs on select goods imported from Canada, Mexico, and China.
Put simply, a tariff is a tax added to an imported or exported good. The president's goal with tariffs is to protect American jobs and encourage domestic manufacturing. Ideally, if goods brought into this country from beyond our borders are pricier, consumers will choose to buy American-made products instead.
But things don't always work out as they're designed on paper.
What makes President Trump's tariffs so dangerous and unpredictable is the lack of differentiation between output and input tariffs. An "output" tariff is a duty placed on a finished product. Although output tariffs often lead to retaliatory tariffs of their own, this is the type of added tax that might offer American manufacturers an advantage.
On the other hand, an "input" tariff is a tax applied to imported goods that are used to make finished products. For instance, most U.S. auto manufacturers import the parts used to make their vehicles. Even though auto companies that meet certain criteria have one-month exemptions from Trump's tariffs, this is the perfect example of how input tariffs can increase costs for consumers and boost the prevailing rate of inflation.
Social Security's COLA is the tool the SSA uses to adjust benefits to account for inflation. In other words, if a basket of goods regularly purchased by retirees rises in cost by 3%, benefits should increase by the same percentage to ensure no loss of buying power. If the prevailing rate of inflation climbs due to tariffs, Social Security's COLA is likely to rise, as well.
However, don't break out the bubbly just yet. In the even that President Trump's tariffs increase Social Security's 2026 COLA, it's still highly possible that seniors will lose purchasing power.
Compared to working-age Americans, seniors spend a higher percentage of their monthly budget on shelter and medical care expenses. Both of these costs have been consistently rising at a faster pace than annual COLAs. Unless the inflationary pressures of Donald Trump's tariffs lift Social Security's 2026 COLA above the tralling-12-month inflation rate for shelter and medical care services, another year of reduced buying power likely awaits.
