Retirement and the Trump AdministrationSubmitted by Miller Financial Group, Inc on February 10th, 2017
What the Trump Administration Means for Your Retirement
By Daniel S. Miller, CFP® and President of Miller Financial Group, Inc.
Traditionally, people look to a Republican presidency with a Republican-led Congress to make economic changes such as reining in spending and tax modifications favorable to big business. And this may still be the case. But if the first weeks of his term are any indication, Donald Trump does not plan to do business as usual.
The reality is that one presidential term is a small amount of time compared to saving for or thriving during retirement. Legislation or measures enacted during one administration may disappear or change during the next (as candidates promise during every election cycle). So, what impact is the Trump administration likely to have on retirement for the foreseeable future?
The retirement outlook offers the "best of times and worst of times" in the Trump revolution. Many Americans are worried about their future and the possibility that changes in Social Security, insufficient savings and escalating health care costs could tarnish their golden years.
Ultimately, the key to withstanding any White House administration is by staying diversified and thinking long term. The reality is that building a meaningful retirement nest and meaningful legislative change both take time - neither happens overnight. Regardless of which side of the political fence you find yourself on, it’s important to remember that executive orders do not lead to immediate tax policy changes, economic growth, affordable health care or sound solutions for Social Security or Medicare. Further, large changes usually take years to implement (The Affordable Care Act was passed in 2010 and the individual plans were first offered for 2014.) So, what can those planning for or entering retirement expect within the next four years and what should they do?
On a large scale, Trump's proposed tax plans could put more money in people's pockets - an analysis conducted by the Urban-Brookings Tax Policy Center indicates that Trump's tax plan could save people an average of $2,940. These plans, highlighted before his inauguration, feature fewer tax brackets, elimination of federal estate tax and the Medicare surtax on investment income, an increase standard deduction and more.
If enacted as outlined, this plan could help people at all levels. Conversely, it could impact the attractiveness of some tax-advantaged options. This could make tax deferral plans and tax-free accounts less appealing in the short term.
Social Security and Medicare
Without change, Social Security and Medicare may not be as viable down the road. Changes implemented so far have slowed the bleeding, but the prospect of reduced benefits (i.e. 75 percent of current ones) looms in the future. Trump promised to "protect" Social Security on the campaign trail, but was vague about his plans beyond reducing the Medicare surtax. Just this month, Trump's Office Management and Budget nominee, Rep. Mick Mulvaney, testified before Congress that an increase in the Social Security retirement age should be considered. These options may imply less benefits overall for retirees, and while it’s hard to know when policy to reflect these changes will be implemented, it would behoove those who are not yet entering retirement to plan accordingly.
Economy and Investment Plans
Just a few days after Donald Trump was inaugurated the Dow hit an all-time-high of 20,000, which led to a lot of media excitement. While this marks a milestone, it is important to remember the Dow only reflects the results of 30 large cap stocks. In order to get a more encompassing view of the U.S. economy, investors may want to look at a combination of indexes such as the S&P 500, the Russell 2000, and the Nasdaq. Those planning for or in retirement need to stay focused on the fundamentals that drive the market, rather than the hype involving a high-water mark set by one particular index. Some important factors to pay attention to include: how the GDP is doing, whether people are buying, what the housing market shows and what interest rates are doing.
Furthermore, in today's global economy, changes in trade rules, isolationist actions and other moves implied by the Trump administration have a far broader impact. Shutting off or curtailing commerce with other countries could potentially damage the U.S. economy and therefore hinder retirement planning for the time-being.
The major takeaway is that retirement investing moves in cycles. So, regardless of the White House occupant, diversification and long-term planning are imperative.
The DOL Fiduciary Rule and Other Considerations
Many anticipate Trump making changes to or slowing implementation of the Department of Labor fiduciary rule enacted under President Obama. This type of change could impact some retirement investing and the rollover market, but CERTIFIED FINANCIAL PLANNER professionals have been required to serve as conscientious fiduciaries for their clients for years. The bigger potential impact deals with commission arrangements, and strengthening protections to ensure all individuals working in the financial industry are working in their client’s best interest.
Trump's initial actions have shaken and awakened people within the Beltway and around the globe. However, once the White House really gets down to the daily reality of life in Washington, there could be meaningful changes that will affect retirement plans for multiple generations. In the interim, the best advice is to make long-term calls for diversification and stay focused on planning far beyond the next four years.
Daniel S. Miller is an investment adviser representative of, and securities and advisory services are offered through, USA Financial Securities Corp. (Member FINRA/SIPC). USA Financial Securities is a registered investment adviser located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.
U.S. News & World Report: Trump's Tax Plan Could Affect Your Retirement
Market Watch: Budget nominee says increasing Social Security retirement age should be considered
Retirement planning in Trump era
What effect will the Trump presidency have on your retirement planning? If you are retiring or thinking about retiring in the next four years, read on.