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How can the 2016 Election Affect Your Retirement?

How can the 2016 Election Affect Your Retirement

Given the effects of Brexit last week, it’s worth considering how the upcoming U.S. election might impact your retirement. From market volatility to public policy changes, a number of factors can be influential. Let’s look at a few possibilities in detail.

Market Volatility Tied to Uncertainty

Elections bring uncertainty, which is conducive to market volatility. Analysis from Merrill Lynch Global Research reports the S&P 500 index has declined an average of 2.8% since 1928 in elections years like 2016. In other words, it’s when the incumbent president isn’t seeking reelection.

On the other hand, data shows the S&P 500 has gone up in 13 of the 16 election years since World War II. Market analysts say this election year isn’t likely to differ too much from prior election seasons. However, elections do heighten people’s emotions, and both the Republican and Democratic presidential presumptive nominees have been getting record unfavorable ratings.

People with equities in their retirement portfolios, or who rely upon stock market earnings for retirement income, may experience some ups-and-downs.

Possible Policy Changes

Clinton and Trump have differing visions for public policy. Their ability to implement their policy vision will greatly hinge on representation in the House of Representatives and the Senate. To avoid current political gridlock, the Democratic party would have to regain control of both the House and the Senate.

Because of these circumstances, the policy landscape is filled with uncertainty. With that said, let’s look at possible policy changes in a few important areas:

Social Security – There hasn’t been much discussion from the candidates on Social Security, but a recent report confirms reserves will be depleted by 2034. If unaddressed beforehand, retirees then would see a 21% haircut in income payments. At present, Social Security pays out around $800 billion per year to about 60 million retired and disabled Americans.

Taxation – Tax policy may not change, given previous presidential pledges to change it and things carrying on without notable tax code reform. However, a change in tax policy could have tremendous implications for seniors, in terms of retirement income and estate planning. Trump supports simplification of the tax code by having fewer tax brackets, and Clinton has stated support for increasing the capital gains tax. She also supports adding a surtax to be paid by high income-earning households, along with increasing the top estate tax rate and lowering the estate tax exclusion amount.

Minimum wage – Trump’s views on the minimum wage are unclear, and Clinton supports raising it. Raising the minimum wage would lead to rising costs of care for seniors, especially for in-home care. The current minimum wage has kept home care service professionals’ wages at lower levels. It may also raise costs for care in assisted living and nursing home facilities.

Effects on Interest Rates

We have been in a low interest rate environment for a while. Whoever is elected president won’t be able to make direct interest rate decisions. But they will hold some influence on when the Federal Reserve decides to raise the federal funds rate (and other interest rates rise, in response). However, with the uncertainty following Brexit, interest rates aren’t likely to be raised anytime soon.

The term of the Federal Reserve Chair, Janet Yellen, will be expiring in February 2018. The next president will choose whether to renew her term or to appoint another board member as chairperson. This decision will have strong sway on future interest rate decisions.

Effects on Bonds & Other Interest-Bearing Assets

If interest rates eventually go up, the value of bonds declines. Many retirees and pre-retirees use bonds as a “safe haven” to avoid market losses. That could have great effects on individuals with sizable bond holdings in their portfolios.

On the other hand, rising interest rates would be good news for fixed annuities, personal savings vehicles, and other interest-bearing assets. Their potential to earn more interest would be strengthened.

Weathering “Election Effects” on Retirement

We have discussed just a few ways in which retirement can be affected. In the end, no matter what the political climate is, sticking to the basics is advisable. Having a careful, well-designed income plan will help you meet your financial needs in retirement.

For people worried about losing what they have worked to get, many Americans find annuities appealing. An annuity protects assets from loss, and depending on the type of annuity you choose, you can enjoy reasonable money growth opportunities. Moreover, annuities offer the benefit of a guaranteed income stream which can last as long as you live.

By working with a financial professional, you can determine whether an annuity can be a good addition to your retirement strategy. can help you.

Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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