In the face of the ongoing COVID-19 crisis, which has left many Americans out of work and struggling to meet basic needs, President Donald Trump is considering proposing a plan to allow workers to take an early Social Security payment in exchange for getting lower payments later, after they’ve retired. This plan was developed by people at the American Enterprise Institute and the Hoover Institution, two prominent conservative think tanks that have developed many GOP plans through the years. If you’re struggling with your finances and think you need help, consider working with a financial advisor.
How Would This Trump Social Security Plan Work?
Here’s how the possible White House plan would work: Individual workers who are having trouble because of the coronavirus crisis could take up to $5,000 from Social Security now. This would be a loan, and anyone who takes it would have to repay the money with interest when the person eventually starts collecting Social Security payments later in life.
Once a person who opts into this plan reaches retirement age and starts collecting social security benefits, his or her first checks would go to repaying this loan, for up to three months. After that, the person would get their normal benefits based on the person’s Social Security contributions during his or her working years.
This would be an entirely optional program — no one would be forced to take money now as a loan against future Social Security payments.
Controversies Around The Trump Social Security Plan
This plan has elicited quite a bit of backlash. Advocates for Social Security have spoken out against the plan.
“Asking working Americans to give up even one dime of their future Social Security benefits to survive today’s economic crisis is a harebrained idea that would hurt families for decades to come,” said Richard Fiesta, executive director of the Alliance for Retired Americans, in a statement.
There is also some fear that this could be the start of a plan to privatize or otherwise alter the Social Security system that President Franklin Delano Roosevelt developed in 1935. The program, created in the midst of the Great Depression, was a response to the increasing number of Americans who were struggling financially in old age. Since its founding, Social Security has been generally seen by progressives as the linchpin of the social safety net, and proposing to change it has been seen as politically dangerous; for a long time, it was referred to as the “third rail” of American politics.
That changed in this century, though. In 2005, President George W. Bush proposed a plan to reform Social Security which would have included some privatization. President Barack Obama also had designs on a “Grand Bargain” on Social Security that would have included cutting some benefits, but he also wasn’t able to get the plan to the finish line.
Should You Take Social Security Early?
Even outside of this particular Trump plan, there are some options for when you start to receive Social Security benefits. For anyone born after 1960, the full retirement age is 67, meaning that you must reach that age to get your full Social Security benefit. You can opt to get benefits as early as 62, though — but your benefit amount will be less.
If you retire before age 67, it may be tempting to file for Social Security right away — after all, income is income and money talks. You’ll be cutting the size of your benefit, though — and, depending on how long you live, you could be creating a situation where you end up getting less money than you would if you waited a few extra years. If you delay your Social Security payments past full retirement age even more, you’ll end up gaining an extra 8% a year for every year you delay until age 70.
If you absolutely need the money, taking Social Security early is understandable. If you can afford to wait, though, delayed gratification is likely the better option.
Tips for Retirement
- If retirement is scary, a financial advisor can help. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Social Security won’t pay for your entire retirement, no matter what. If you have access to a workplace retirement plan like a 401(k), make sure you take advantage.
Photo Credit: © iStock/GetUpStudio