The next presidential election is set to take place in just a few months and Donald Trump is once again a candidate for the position. What this means for you and your retirement savings is still unknown. But one thing’s for sure: There’s bound to be some changes on the horizon.
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To find out what these changes might be, GOBankingRates spoke with two financial planners, Robert Persichitte and Ben Klesinger.
These are their predictions for what a Trump win could mean for your retirement savings.
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A Trump Win Could Lead To Greater Stock Market Volatility
The stock market has always been volatile. However, Persichitte (CPA, CFP, CFE), an affiliate professor at the Metropolitan State University of Denver, predicts more volatility in foreign stocks if Trump gets reelected.
“Trump repeatedly promises to have more control over the Federal Reserve as president. This could seriously destabilize U.S. exchange rates,” he said. “Even if foreign markets are unaffected, a weaker U.S. dollar could mean more expensive imports but also big gains on foreign investments. Trade policies could hurt operations, so there are no guarantees of how the market would react.”
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There’s something to be said about learning from history as well.
“I also wanted to include a relevant anecdote about the 2016 election. In 2016, you could see that the more popular Trump was, the worse the U.S. dollar performed,” said Persichitte. “On the night of the election, the Dow was down 5% on the surprising news Clinton lost. Before the market opened, my office called an emergency meeting at 8:30 a.m. ET. We discussed how to respond to panicked investors about the immediate hit to the market. To everyone’s surprise, the markets were up. Investors thought the election as a whole was a net positive.”
Ultimately, as Persichitte pointed out, it’s hard to predict what the markets will do — especially in the short term. His advice to those who’ve invested in the stock market is to do so for the long term.
A Trump Win Could Also Mean the Continuation of Previous Tax Policies
During Trump’s first term, he initiated several tax policies — like the 2017 Tax Cuts and Jobs Act (TCJA), which reduced the corporate tax rate from 35% to 21%. It was also designed to lower the tax burden on personal income taxes.
The TCJA is set to expire in 2025, but whether it does or not depends on many factors, including who wins the next election.
“If Trump gets reelected, one impact we might expect is the continuation of his administration’s tax policies,” said Klesinger, a financial planner and CEO of Reliant Insurance Group. “The TCJA … could remain in place.”
If it does, Klesinger predicts it will impact how people choose to fund their retirement accounts. In particular, he believes traditional IRAs may become more attractive due to the tax-deductible contributions that match the lower tax rates. Roth IRAs, meanwhile, could become less attractive if tax rates increase in the future.
As the reelection nears, it’s important to review your investment portfolio, current and expected tax bracket and retirement plan to determine whether everything is on track. Depending on your situation and the results of the presidential election, you might need to make some adjustments.
Social Programs Could Be in for Some Changes
Over the past couple of decades, Trump’s views on Social Security and Medicare seem to have changed quite a bit. Back in the early 2000s, he was recorded saying that he believed the Social Security system needed a massive overhaul and cutbacks on funding. More recently, however, he’s promised to protect the system as it is and leave the program as unchanged as possible in the event of a reelection.
Given the back and forth, it’s a little unclear what a Trump win could mean for those who rely on these social programs as part of their retirement income.
“Changes in social safety nets like Social Security could also be on the table,” Klesinger said. He went on to say that any proposals that might cause a Social Security reform or major changes to Medicare could affect retirement planning on a broader scale.
“If Trump proposes a payroll tax cut funding Social Security, there could be long-term implications for the program’s sustainability,” he said as an example. “Individuals may need to save more in their IRAs or 401(k)s to compensate for any potential shortfall in future Social Security benefits.”
Trump’s Stance on Deregulation Could Also Affect Retirees
During his initial term as president, Trump made great strides in his deregulation efforts, to promote economic growth and reduce the financial burden many Americans face. One particular deregulatory effort was estimated to save American households around $3,100 a year. Another led to the creation of over 6 million new jobs, lower unemployment rates and increased wages across industries.
If he’s reelected, he could continue with these deregulatory efforts. This could be a double-edged sword, according to Klesinger. Deregulation, he said, tends to push stock market valuations higher.
“This could be beneficial for those holding 401(k)s and other retirement accounts invested in equities. However, stock market volatility is also a risk, especially in sectors like real estate and energy, which can oscillate with policy changes.” Klesinger said.
What the Next Election Could Mean for Your Retirement Savings
“Whoever gets elected will have a massive impact on both financial plans and your account balances,” Persichitte said.
A Trump win could mean more deregulation, possible changes to social programs and more volatility in the foreign stock market. Each of these could be either positive or negative for retirees.
But even if Joe Biden wins, there’s bound to be some changes coming.
“If Biden wins, we can expect big changes to social programs that ripple through investments. Biden’s big policies are all inflationary measures,” said Persichitte. “Infrastructure investment, student loan forgiveness, healthcare access and education are expected to drive up inflation, which will keep interest rates higher for longer.”
“If your assets are earning no interest or low interest, you are at risk of your money not keeping up with higher inflation,” he continued. “On the plus side, those types of stimulus tend to prop up the stock market. If inflation is hot, don’t get left behind. Consider risks before investing because the stock market is considered a higher risk than a bank account.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: What a Trump Win in November Would Mean for Your Retirement Savings
