Just two weeks into his presidential tenure, Donald Trump already is taking swift action. From sweeping executive orders to bold ambitions for tax reform, immigration, job growth, and more, these times are a whirlwind. Many Americans wonder what it might mean for the future. What effects could a Trump administration have on issues relating to their retirement?
During the campaign season, President Trump was a political wildcard. Not all of his policy stances were clear, and at that point, that meant uncertainty and wide-ranging speculation for retirement investors. However, since entering the White House, Trump has clarified some of his policy positions. The question then becomes what all of this means for hard-working American households, whether retired or getting ready for that stage.
If you are retired or preparing to retire within the next four years, this post will go over a few important ways the Trump administration can be impactful. Read on for some quick takeaways that will be helpful for your retirement planning future.
What are Some Possible Effects of a Trump Administration?
Let’s examine a few potential areas of impact that are currently being discussed and/or played out:
Market volatility. Anytime a new administration comes to power, it brings change. For retirement savers, this political uncertainty can spurn investing fears or speculation. That could be costly, as cognitive biases might lead to premature selloffs of investment holdings or other in-the-moment decisions. For retired or near-retired Americans – who should be thinking about how to deploy their accumulated assets into retirement income streams, in our view – ill-made choices could be even more costly.
Since Trump’s electoral victory, the markets have risen to all-time highs. On November 22, 2016, the Dow Jones finished above 19,000 points. Those gains were attributed to positive investor sentiments over initial Trump policy pledges, according to Mohamed El-Erian, among other factors. Subsequently on January 27, 2017 – a week after the presidential inauguration – the Dow hit the 20,000-point milestone. Other indices also made record gains – the S&P 500 reached an all-time high on January 24, 2017, for example. Financial pundits attributed these post-inauguration rallies strongly to Trump’s executive orders.
Dow Jones Performance from Election Day until Jan. 23, Source: FactSet
Now, how does this relate to you? Some pundits speculate that whether the upward surge continues hinges on the administration’s tax reform push being successful. Then there is the reality of political dynamics becoming more certain: what relationships with foreign nations will look like, what legislation Congress will focus on – these and other factors being influential in how much traction President Trump can get for his policy ambitions.
If the market fell due to selloffs or to-be-revealed political events, the volatility could have implications for the income security of retired or soon-to-be-retired Americans. Consider the following illustration below, of a retirement account with a $400,000 initial value, an initial withdraw strategy of 4% per year, and a 2.5%-per-year withdrawal rate adjustment for inflation.
Source: Internal Content by Associates at SafeMoney.com and Safe Money Resource. All rights reserved.
The DOL fiduciary rule. As we have noted in previous blogs, the upcoming DOL fiduciary rule elevates financial professionals to new levels of ethical and legal conduct. However, there has been speculation of the Trump administration delaying, changing, or discarding the rule. One justification behind this is the Department of Labor has not been clear in the ruling’s application. With the April 10, 2017 deadline around the corner and parts of how the rule will apply still being unclear, a delay or regulatory changes may be in order.
This holds implications for you and other Americans in a number of ways. For one, the financial services industry has been making seismic changes for regulatory compliance. And changes continue to be made. The means by which you would obtain retirement planning advice for your future may look different from how you received it in the past. Or if there is a delay or any changes, the rule as it is today may be different in any number of ways.
Social Security, Medicare, and Other Programs. On the campaign trail, Trump declared his intention to leave Medicare and Social Security alone. This is a position which is different from those of Republicans in Congress. As noted in one article, the chairperson of the Social Security subcommittee for the Ways and Means Committee recently introduced a Social Security reform bill.
This brings up a couple questions:
- Say Social Security reform legislation passed the House and the Senate. If it came to Trump’s desk, would he sign it or veto it?
- Could Trump be put under pressure from lawmakers for Social Security reform in exchange for pushing his own legislative priorities?
Those are important possibilities to think over, considering that health costs are on the rise and Social Security is an important income stream for many retirees.
However, it is important to note that Social Security and Medicare continue to be hotbutton issues for the voting public. They may well be left alone, depending on later-term voter perceptions and responses to any reform proposals.
Creating a Retirement Plan to Weather Political Effects
These are a few ways in which a Trump administration may impact retirement issues in the near term. As our political situation in the United States continues to unfold, other potential effects will emerge. The important point is that your retirement planning success doesn’t need to hinge on whoever is in the White House or other offices – though they will be influential.
Being well-prepared for political effects and other retirement risks means planning today. Your financial plan should include a roadmap to help you enjoy income certainty for all of your retirement years. If you are ready for an effective income strategy fitted to your needs, get in touch with us at 877.476.9723 (877.GROW.SAFE). Request a no-cost phone consultation or one-on-one meeting to discuss your retirement goals, needs, and what you can do to achieve them.
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