After a tumultuous election season, investors are continuing to digest what a Trump presidency may mean for them. Will trade relations suffer or improve? What will happen to interest rates? What about taxes? The President-elect has made big promises to create and change policies that particularly impact retirees and soon-to-be retirees. We focused in on Trump’s plans for Taxes, Social Security, and Healthcare. While no one knows for certain what the future may hold, here is a look at what you could expect after January.
Trump has made it clear that he plans to lower taxes for individuals and corporations. His plans include lowering tax rates and increasing standard deductions (joint filers would have a proposed $30,000 standard deduction from current $12,600) and repealing alternative minimum tax (AMT). For retirees and soon-to-be-retirees, Trump’s tax plans could present a valuable opportunity to convert IRA assets to ROTH assets. It also could mean that working a few more years could have a big impact on your retirement plan by allowing you to save a higher percentage of what you’ve earned.
Trump has also made statements that he would like to see the estate tax or as he calls it, the “death tax” repealed. In 2016, the federal estate tax exemption was $5,450,000. That means that if you passed away in 2016, your estate would need to amount to more than 5.45 million dollars before you would be obligated to pay a federal estate tax. For married couples, that figure is doubled ($10,900,000). Under Trump’s repeal and reform, “capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.” This is good news for retirees concerned about the federal estate tax, but it is important to remember that states have their own estate tax code.
Trump had dodged exactly he plans to maintain Social Security benefits with lower taxes, but nonetheless he has said he would. With underfunding an issue and unclear plans on how to maintain current benefits, retirees and soon-to-be-retirees should take a conservative approach and assess what other income producing assets are in their portfolio, and carefully monitor discretionary spending.
According to Trump’s Healthcare Reform Plan, he intends to ask Congress on his first day in office to fully repeal Obamacare and replace it with, “free market principles that will broaden health care access, make healthcare more affordable and improve the quality of the care available to all Americans.” Again, unclear on how all of this will actually pan out. What is clear is that Healthcare costs represent one of biggest expenses, if not the biggest expense for retirees. Advanced planning leading up to retirement can help alleviate that stress by maximizing contributions to Health Savings Accounts (HSAs), as well as carefully choosing a Medicare supplemental policy.
Regardless of income or life stage, it is too early to know what the future holds with a Trump presidency for critical policies on Taxes, Social Security, and Healthcare and beyond. History has shown that a disciplined investor with a financial plan has more wealth and more stability than those without.
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