This could be fixed by:
1. Eliminating income tax on 401k distributions
2. Eliminating tax on social security income
3. Increasing social security benefits
None of these will happen.
1. Eliminating income tax on 401k distributions
2. Eliminating tax on social security income
3. Increasing social security benefits
None of these will happen.
2. Giant tax cut, inflationary
3. Without corresponding tax increase or cuts elsewhere, inflationary
Taxes are the last reason people don't have enough in retirement. If you only have 100k saved up in a traditional 401k, and say you're doing pretty well in the 22% income tax bracket overall so that over time gets taxed down to 78k, over the course of a 20 year retirement that's just $1100.00/year in taxes. That's what, a few weeks' groceries? Taking those taxes away by contrast will be extremely inflationary and lead to people losing more money to inflation than they saved in taxes.
Let's say the government wastes all the tax revenue building a next-generation aircraft carrier that's so incompetently constructed it collapses in drydock before it can ever set sail.
That won't cause the price of everything to go through the roof, except perhaps locally where the money is spent.
And actually, the government can often put the money to better use than individuals. Is there incompetence, corruption, and wasteful government spending? Of course. But two things can be true at the same time. I'd like to see an individual try to build a bridge, repair a road, or open a public school off of their tax savings.
So (3) would definitely help that group (as sibling mentions, it's also inflationary). Bernie Sanders and others have proposed raising benefits for current retirees recently, even while Social Security needs to be shored up. With the Republican House it can be argued this is mostly political theater (disclaimer: I vote for Democrats and am usually a Bernie fan.) tl;dr like you mention this probably won't happen.
(2) Social Security is 50% taxable between $30-45k and 85% taxable above $45k. IIUC, couples over 65 get a slightly raised standard deduction of $29,200, so if they only have social security they're paying 0 and half-tax up to $74,200, which if my math is right will be an effective tax rate of around 3-4%.
Some states may tax retirement benefits; due to the above these can be higher than the Federal taxes.
(1) There's Roth for this, though I recognize not everyone has the means or planning. But I mention this in the context of +1'ing Trad 401(k) taxes not going away... Roth lets the government pull future revenue into the present to be spent now. Also, Dems would probably bring up a fairness angle as to which groups contributed to 401(k)s and how this would be more regressive than an across-the-board cut.
But regardless of whether it's 401(k) or other income, the Federal tax rates can be quite progressive. The 2023 12% bracket for couples goes all the way up to $89,500, so adding the standard deduction a couple can make $118,000 and still be in the 12% bracket (effective federal tax will be around 8-9%). Though the more that they make under this point, the more it pushes their social security into taxable ranges...
If the couple has long-term gains from a taxable investment account, there is a 0% LTCG bracket up to $89k as well, meaning so long as they have no other income, a couple can realize six figures of gains every year and pay no federal tax on them.