This has been quite an election. Zigs and zags and surprises.
It is too soon to be certain of anything, but if you are retired or near retirement, here are a few things to watch based on the Trump’s plan for his first 100 days in office.
The U.S. stock markets were closed on election night. However, when they realized that Secretary Hillary Clinton was going to lose, traders around the world started a huge sell off of U.S. stocks. You might have missed the news, but futures on the Dow Industrials had fallen through the floor.
And then Donald Trump gave his victory speech and the world decided that he sounded sane and they held off on the panic.
So, will your retirement savings be safe for the next four years? There is no way to answer that question. We know that volatility is a trademark of Donald Trump and the financial markets like stability. However, we also know that Trump is a clear friend to Wall Street and will likely be putting people from New York in his cabinet.
It is likely that we will see a roller coaster ride in the financial markets but if anything has been true of this election it is that the future is almost impossible to predict.
What to Do: If you have retirement savings that are invested in the stock markets, think carefully about whether or not you can sustain big losses — either temporarily or for a longer period of time. Consider when you will need access to the money and try to have a back up plan. (Have you considered a home equity line of credit as a source of wealth to be tapped?)
President Elect Trump has not spoken much of Medicare. However, he does intend to repeal the Affordable Care Act (ACA) and substitute Health Savings Accounts.
This might have a huge impact on your plans if you are retiring before the age of 65. The ACA makes healthcare available to anyone — no matter pre existing conditions (and let’s face it, most of us have some kind of condition by retirement age). The ACA insurance has been criticized for being expensive, but depending on your income, it was usually less expensive for early retirees than the options that were previously available.
What to Do: If you want to retire before the age of 65 or if you already have care through the ACA, then you might want to plan for increased costs. It appears that you may simply need to save enough in a Health Savings Account to be able to pay medical costs out of pocket.
If you are retiring after age 65, then you will be eligible for Medicare and the repeal should not impact you.
President Elect Trump intends to reduce the federal workforce.
He says that he will impose a hiring freeze on all federal employees to reduce federal workforce through attrition (exempting military, public safety, and public health).
It is unclear exactly how this will play out. The idea behind the hiring freeze is to reduce waste. However, we may find that it impacts services retirees rely on.
The Social Security Administration (SSA) has been under a hiring freeze for most of this decade and is currently struggling with long wait times. Beneficiaries now wait four months on average to start getting benefits payments.
If you depend on any services from the federal government — home loans or other services through HUD, low income benefits through the Department of Health and Human Services, federal roads or other infrastructure, etc… — then the hiring freeze may impact you.
What to Do: It is difficult to predict the exact impact of these hiring freezes.
President Elect Trump intends to institute a requirement that for every new federal regulation, two existing regulations must be eliminated.
Regulations are designed to protect people but some believe that they are too onerous on business.
Whether this impacts you or not will depend on the exact regulations that are eliminated. Regulations are enforced by every department, but Trump seems particularly interested in reducing regulation impacting energy companies and Wall Street.
With regards to regulations in the financial industry, Trump has mentioned wanting to get rid of:
- The Labor Department’s rules that impose the fiduciary standard for financial brokers who sell retirement products. The fiduciary rule requires that personal finance professionals act in the best interests of their clients and their clients goals.
- Rules that were put in place after the financial collapse of 2008 including the Glass-Steagall Act, The Dodd-Frank banking reforms and the Volcker rule.
What to Do: If you work with a financial advisor or will at some time in the future, then you will need to be better educated about personal finance so you can better assess the pros and cons of the financial advice and not rely on the fiduciary standard.
Taxes are a complicated topic. President Elect Trump says he wants to simplify them.
His proposal includes reducing the tax brackets from seven to three. For joint returns, the proposed brackets for federal income taxes are:
- 12% if you are earning less than $75,000
- 25% if you are earning more than $75,000 but less than $225,000
- 33% if you are earning more than $225,000
Taxes on dividends and capital gains would be capped at 20 percent, but the plan would limit itemized deductions, with an exception for charitable giving and mortgage interest. It would increase the rate of the personal exemption phase-out and the limit on itemized deductions. It would repeal the Alternative Minimum Tax, The Estate Tax, and the Gift Tax.
An analysis of the plan by the Urban-Brookings Tax Policy Center found that the Trump plan was designed to benefit the wealthy, and would greatly increase the national debt.
What to do: It is unclear if or how quickly a new tax code would be implemented. If you are concerned, you might want to speak with a tax professional.
President Elect Trump has proposed tax free Dependent Care Savings Accounts that could be used to save money that could be used on either young children or elderly dependents.
This system would make savings intended for long term care costs be more tax efficient.
What to do: It is unknown if these accounts would be superior to retirement accounts or long term care insurance. And, no details have been provided about contribution limits, mandatory deductions or other rules for these accounts.
