The 2024 elections are fast approaching, marking one of the most divisive campaigns in recent history. For those nearing retirement, the outcome of this election could have profound consequences.
A potential shortfall in Social Security could result in significant benefit reductions. The president who is elected this year will influence both the funding mechanisms for the program and the possible changes to benefits. Social Security is just one of several concerns that will affect retirement planning.
“This upcoming election is pivotal for retirees,” remarks Brandon Ashton, director of retirement security at Cornerstone Financial Services in Southfield, Michigan. “Legislation on taxes, modifications to pensions, adjustments to the retirement age, changes to required minimum distributions, healthcare expenses, and more are all on the line.”
Experts advise those preparing for retirement to keep informed about any developments and their potential impact on financial plans. Here are five critical areas to monitor as the election progresses, along with steps to prepare — regardless of the election outcome.
Social Security constitutes a significant fraction of income for American retirees. However, due to dwindling reserves in the program’s trust fund, analysts predict a potential benefit reduction by 2033 unless funding issues are adequately addressed. NPR estimates that the average benefit could be cut by nearly 21%.
This scenario would greatly affect retirees. “The election winner will influence the direction of Social Security,” states Ashton. Still, any adjustments to funding will ultimately lie within Congress’s jurisdiction.
Some members of Congress are debating options such as increasing the full retirement age, cutting benefits, or terminating adjustments that help keep Social Security payments aligned with inflation. What you can do: Increase your savings and investments towards retirement. Anticipated benefit reductions suggest that individuals approaching retirement should consider making financial decisions that promote greater independence in funding their retirement.
With potential cuts still years away, making proactive financial changes now can help strengthen future resources. The expiration of the 2017 Tax Cuts and Jobs Act — commonly referred to as the “Trump tax cuts” — is expected to be among the most debated topics. This law is due to expire at the end of 2025.
Congress must take action to either renew it or revert to the pre-2017 tax structure. Both candidates have put forward different proposals on tax reforms. For example, Harris has suggested raising the top tax rate from 37% to 39.6% while ensuring that households earning $400,000 or less do not face tax hikes.
Additionally, she has proposed instituting a minimum 25% tax for households possessing assets exceeding $100 million.
Impact of elections on retirement planning
Trump, on the other hand, has expressed intentions of extending current tax provisions, lowering corporate taxes, and establishing an all-encompassing tariff on imports.
What you can do: Prioritize tax strategy. Effective planning can help reduce your tax liabilities. Retirees can manage their income and, by extension, their taxes, by controlling the funds withdrawn from their retirement accounts as income.
An anticipated increase in tax rates might indicate that now is a beneficial time to consider converting traditional retirement accounts like IRAs or 401(k)s into Roth IRAs. This conversion can allow for a variety of advantages. “If you believe the Trump tax cuts will not be renewed, why not take advantage of them now?” suggests Primavera.
A Roth conversion can be an excellent tactic in retirement planning.
What you can do: Explore the option of a Roth IRA conversion. While future tax frameworks are uncertain, many retirement advisors recommend considering a Roth conversion, particularly if there are several years remaining until retirement. “In terms of the Trump tax cuts expected to lapse at the close of 2025, the most significant alteration would relate to reductions in estate tax,” states Steve Azoury, ChFC, owner of Azoury Financial in Troy, Michigan.
Under current regulations, Americans can transfer up to $13.61 million without incurring estate taxes. If estate tax laws revert to their previous state, this threshold will significantly decline, and any amount exceeding it will be taxed at high rates.
What you can do: Stay informed. While there may be time to observe how this matter develops, given the potential tax advantages under the current regime, consulting your advisor regarding your circumstances could be prudent.
Avoid the temptation to abandon your investment and retirement strategies if your preferred candidate does not prevail. Experts recommend against this course of action. “Elections can be quite unpredictable. Each person has their views, but these should not dictate your retirement objectives,” emphasizes Azoury. “The worst move would be to liquidate all investments and shift to cash,” cautions Primavera. If you need to mitigate risk, approach it systematically.
What you can do: Adhere to an investment strategy that aligns with your long-term objectives. Make modifications with care rather than impulsively. By remaining informed and taking proactive steps, retirees can effectively navigate changes resulting from the 2024 election while safeguarding their financial future.
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