Before his reelection campaign, President Donald Trump expressed support for eliminating federal taxes on Social Security benefits, which could have a significant impact on retirees.
According to the Social Security Administration (SSA), nearly 69 million Americans are currently receiving benefits.
However, not every recipient is taxed. The SSA notes that “about 40% of people who get Social Security must pay federal income taxes on their benefits.”
According to estimates from the Tax Policy Center, removing these taxes would save qualifying Americans an average of $550 per year.
Some may save significantly more, and the financial benefits may continue to grow in the future. Here are four clever ways retirees could spend the extra money if Social Security taxes are reduced.
1. Boost Your Emergency Savings
Financial experts recommend saving at least three months’ worth of living expenses, but retirees should aim for six to nine months.
However, many fall short. According to a recent Employee Benefit Research Institute (EBRI) report, only 59% of retirees have at least three months of emergency savings, a decrease from 69% in 2022.
Furthermore, 36% experienced unexpected retirement expenses. If you receive a tax break on your Social Security benefits, consider putting the money in a high-yield savings account to help cover future financial surprises.
2. Invest in Dividend-Paying Stocks
Using unexpected savings to invest can help you grow your wealth and earn more money. Dividend-paying stocks are particularly appealing to retirees seeking consistent returns.
Despite market fluctuations in 2025, dividend stocks have done well. For example, the S&P 500 Dividend Aristocrats have gained nearly 3%.
The Wall Street Journal reported that other dividend-focused stocks have seen even higher returns. Investing your savings can help you manage risk and achieve long-term financial stability.
3. Use the Extra Funds for Travel
Retirement is an ideal time to enjoy life and travel. According to AARP, nearly 70% of Americans over the age of 50 plan to travel in 2025.
Whether you’re planning a luxurious vacation or a simple road trip, using extra savings to cover travel expenses can help alleviate the financial burden.
With airfare and hotel prices influencing travel decisions (51% and 50%, respectively, according to Skyscanner), it makes sense to apply any new savings to these rising expenses.
4. Set Aside Funds for Big Purchases
Rising inflation and tariffs have made large purchases more difficult for retirees, many of whom depend on Social Security as their primary source of income.
Setting aside tax savings for major expenses such as home repairs, appliances, or medical bills can provide peace of mind.
Keeping the funds in a high-yield savings account allows them to grow until you’re ready to buy.
While it remains unclear whether Trump will be successful in eliminating taxes on Social Security benefits, any changes would require congressional approval.
Meanwhile, planning how to use any potential tax breaks can help strengthen your retirement finances.
