What Donald Trump's presidency means for your retirement
© Getty Images

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. This may still be the case with this administration. But if the first weeks of his term are any indication, Donald TrumpDonald John TrumpHouse Democrat slams Donald Trump Jr. for ‘serious case of amnesia’ after testimony Skier Lindsey Vonn: I don’t want to represent Trump at Olympics Poll: 4 in 10 Republicans think senior Trump advisers had improper dealings with Russia MORE 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. What impact is the Trump administration likely to have on retirement for the foreseeable future?

ADVERTISEMENT
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 healthcare, or sound solutions for Social Security or Medicare.

Further, large changes usually take years to implement. The Affordable Care Act. for example, was passed in 2010, and the first individual plans were offered for 2014. What can Americans planning for or entering retirement expect within the next four years and what should they do?

New tax policies

On a large scale, Trump's proposed tax plans could put more money in people's pockets. An analysis conducted by the Urban Institute and Brookings Institution’s 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 increased 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 (R-S.C.), testified before Congress that an increase in the Social Security retirement age should be considered.

These options may imply less benefits overall for retirees. 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 Trump was inaugurated the Dow Jones Industrial Average 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 capitalization 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 gross domestic product (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. Regardless of the White House occupant, diversification and long-term planning are imperative.

The fiduciary rule and other considerations

Many anticipate Trump making changes to or slowing implementation of the Department of Labor’s fiduciary rule enacted under President Obama. This type of change could impact some retirement investing and the rollover market, but certified financial planner (CFP) 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 clients’ best interests.

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, CFP, is president of Miller Financial Group.


The views of contributors are their own and are not the views of The Hill.