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Trumping It Up: Financial Insights from the Bombshell 2016 Election

donald trump retirement issues blog photo

Photo credit: Donald Trump as he exits the stage after speaking at CPAC '11. By Mark3tel (2011) https://flickr.com/photos/n3tel/5434963575 Attribution (http://creativecommons.org/licenses/by/2.0/). Photo attribution by PhotosforWork.com.

This presidential election has brought lots of fireworks. Many Americans worry about the future and what it means for their money. Is a comfortable future – a financial life without anxiety and recurring headaches – really within reach?

President-elect Donald Trump isn’t completely clear in all of his policy stances. From an investor standpoint, it injects uncertainty in the future. How financial markets will react to a Trump administration’s policies is anyone’s guess – and for Americans approaching retirement, it is an especially important question.

If you plan to start drawing on your nest egg within the next eight years, do not fret. Here’s a quick look at some of the takeaways from this election – and how you can keep your money safe, spend with confidence, and enjoy the retirement you have worked hard for.

Market Volatility

A famous “electoral effect” is how financial markets perform post-election. For many retirees and workers within the 10-year range of retirement, it’s a question mark on their financial outlook. Should a notable proportion of their nest egg be within volatile instruments – stocks, bonds, or other investments subject to market risk – their retirement income goals can be affected. In what vehicles your life savings are allocated -- and thereby preserved from market downfalls -- is of foremost importance for future income security.

Now, how does this apply to our current electoral conditions?

Prior to ballot tallies rolling in, Clinton was favored to win. Investors had seemed antsy about the uncertainty of a Trump presidency in weeks before the election. The VIX, or a volatility index known informally as Wall Street’s “fear gauge,” had risen almost 40% in the past two weeks.

As the votes were tallied on Tuesday night, it was clear Trump had a more definitive path to victory. The news sent financial markets into a tailspin. The Dow Jones Industrial Average plunged over 700 points in futures trading – a 3.5% decline around 10:00pm ET on Tuesday. We can see this flurry of activity on Election Day in the graph below, courtesy of Quartz and TheAtlas.com.

 
Towards later Wednesday, November 9, the Dow swung back, coming within 49 points of a new record closing level. All told, the Dow Jones saw a 1,100+ point swing from trough to peak over pre-trading and trading hours. This graph of the Dow Jones Industrial Average from Reuters Finance shows the changes, including index gains up to slightly after opening bell this morning.
 
donald trump retirement issues dow jones november 2016


In other indices, futures for the S&P 500 fell by nearly 5% -- the maximum allowable limit outside of U.S. trading hours. Afterward, the index saw a rebound. At closing time, it had risen back up to 2,163.26 points, a notable recovery from its hovering around the 2,140-point mark throughout Tuesday. As of this writing, earlier today, the S&P 500 had reached 2,182.30 – a point just slightly south of its standing intraday record. These trends are observable in the S&P 500 graph below from Reuters Finance.

donald trump retirement issues blog post

The point is that even though the markets have stabilized, there is the question of future market effects. Think about it. If too much money were in the market, and the market fell, it would take time to recover. How can someone sustain the lifestyle they worked hard to achieve, if the money they are using to fund it takes a hit? As we get closer to retirement, or we are retired, the financial focus should be on monthly income. What standard of living do we maintain on a monthly basis, and what income is needed to sustain those lifestyle expectations?

In short, too much reliance on volatile investments for income, ultimately, ties retirement spending to market up-and-downs. Of course, what "too much" means will vary from person to person. It depends on variables including age, financial circumstances, risk tolerance, time-horizon for retirement or pre-retirement, and other personalized factors. The point is that you may want to consider "wealth protection strategies," or ways you can ensure your money lasts for all your retirement years.

Retirement Security Policymaking

As noted, the complicated interplay of Trump administration policies, and how national powers across the globe respond, will be a factor. Then there is the matter of of domestic policy. Trump administration policymaking at this level will have a direct bearing on retirement security for Americans over the next decade.

- Social Security. Social Security makes up a significant proportion of income for most retired Americans. As it stands without reform, by 2034 benefits would get a 21% haircut. This would stem from the Social Security trust becoming insolvent.

During his campaign, Trump expressed strong support for preserving Social Security as is. One solution he has proposed is stimulating job and income growth via a simplified tax code and relaxed business regulations. However, with the national debt ballooning to record levels, the door is open to entitlement reform, including Social Security program changes.

- Medicare. Like its Social Security counterpart, Trump favors leaving Medicare alone. Again, however, entitlement reform may be an issue as population demographics continue to change. Specifically, the number of Americans retiring is an important factor. There will be over 82 million Americans who are retired by 2040, according to the U.S. Census Bureau. Some of these trends can be seen in this graph below.

Population demographics

- Interest rate policy. As we have noted in prior posts, the Fed is insulated from other governmental components. But Trump can lay out an agenda for what he believes interest policy should be, which impacts public discussion. And when Yeller, the Fed chairperson, has her term end in 2017, Trump may appoint a new Fed chief who is a closer supporter of his interest policy views.

New interest rate hikes would impact a number of interest-bearing instruments used for income, including savings accounts, certificates of deposit, annuities, and other conservative vehicles.

 - Costs of retirement living. A large retirement spending category is health costs. Trump has proposed lowering health costs via permitting health insurance sales across state boundaries, letting Medicare negotiate prescription drug pricing, and allowing for imports of less-costly prescription drugs from foreign nations. He has also talked about implementing policy that encourages job growth, which would affect income of people working in retirement.

Beyond this, other policy stances which may affect retirement living costs are unclear.

- Retirement saving gaps. A tremendous issue for baby boomers is a lack of household retirement savings. Trump has been largely mum on this issue. So it isn't clear what steps his administration might take to spurn stronger household saving.

What's the Takeaway?

No matter what policies are set, our financial security is ultimately up to us. We must plan for our own future, we cannot rely solely upon guaranteed government programs or the volatility of the market for our retirement income objectives. Growing numbers of Americans, retired and not-yet-retired, are wondering what safeguards they can take to ensure their assets last as long as they do. 

If you need help creating a safe, dependable financial plan, SafeMoney.com 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.

Author: Ian

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