WHAT DOES THE ELECTION MEANT TO MY RETIREMENT?

Political debates get heated, proposed plans from each candidate are analyzed, and virtually everywhere you look, you’re told to get out and vote! But what does the election mean for your retirement? We’ll do our best to set the emotionally-charged stuff off to the side to review possible tax proposals and learn from what past elections have taught us. Also, be sure to stick around to the end where we cover four actionable steps for your retirement plan.

Likely Changes

First off, let’s take a look at some likely changes if the White House were to see a new president.  If they are able, Democrats will almost certainly roll back tax cuts enacted through the TCJA of 2017 (Tax Cuts & Jobs Act).  No Democrats supported the bill in the first place, and they have openly petitioned to repeal it.  This would cause 5 of the 7 income tax brackets to go up while the standard deduction would go back down, increasing the overall tax burden for many Americans.

We could also see “capital gains” treatment go away, meaning investment gains outside of retirement plans would be taxed at your income rate, rather than the more favorable capital gains rates.  Additionally, we would likely see the “estate tax exemption” cut in half, affecting more Americans who wish to pass their assets to future generations.  If you have or expect to have more than $5 million in total assets, having an estate planning conversation with your financial advisor and attorney is a must!

Opposite of taxes, the Democratic Party tends to support more economic intervention, favoring stimulus packages and government-funded programs.  In general, the stock market frowns upon higher taxes, but reacts favorably to additional economic stimulus, even despite clear expansion of the federal deficit.

Taxes and economic stimulus are just two among perhaps hundreds of variables.  I hope this gives you a peak into how we can plan for certain changes, but trying to predict how they will affect the market is next to impossible.  Let’s take a closer look at this below.

Are Markets Better Under Blue or Red Leadership?

Following conventional wisdom, many believe that markets perform better under the fiscally conservative leadership of a Republican.  However, if we look all the way back to the end of World War II, annualized stock market returns under Democrats have been 10.6% compared with 4.8% for Republicans.  But as soon as we think we see correlation, we have to ask ourselves, “Who controlled the House and Senate during these terms?”  “Do Democrats and Republicans look anything like their parties of 50 years ago?” “What else was going on economically during each term?”  When we step back and look at the bigger picture, it seems past results tell us more about what was going on at the time, rather than offer predictive information for the future.

People often make changes out of fear, and unfortunately, many financial firms’ marketing efforts are aimed at provoking fear with the upcoming election.  I’ve even heard financial advisors recommending clients keep their assets on the sideline until the election is decided.  This could work out for investors, but you could also flip a coin and get heads 4 times in a row.  Planning on either is a losing bet.  In fact, if we keep our assets on the sidelines and miss out on only a few key days in the market, this could spell disaster for our investment.  Historically, the market can be a bit of a roller coaster, and a disproportionate amount of gains for each year take place in just a handful of days.  

On a related note, if your advisor isn’t able to time the market to deliver superior returns, what are you paying them for?  We have covered some of this in the past, but in a “coming soon” article, we will review a more comprehensive list where a great advisor can add value.

So What Can I Do?

If you are worried about how the election will affect your retirement plan, perhaps it’s time to take another look at your plan.  A stable plan is like a house built on a firm foundation- it can absorb the rumblings of political uncertainty, market dips, and even a global pandemic.  Any plan that is susceptible to a change in the oval office is like the house built on sand- it could easily topple due to any number of variables life throws us.

Retirees often have a house build on sand when they are still in what I call the “investment-only” mindset.  They’ve worked their whole life accumulating assets, so it’s only natural to continue this thinking into retirement.  Instead, retirement is a time to take a step back and look at the bigger picture- what do you want to accomplish in the next 20, 30, or more years?  What’s most important and how has this changed now that you’re retired?  What is your income and tax plan to make use of your lifelong nest egg?  These are questions you’ll have to address with yourself, your spouse, or an advisor to make sure your plan mirrors your vision for retirement.

Action Steps

1)

Ponder the above questions to help you pinpoint what’s most important in your retirement (use our FORM page for additional help).

2)

If you feel like your “retirement house” is built on sand, work on converting your investment plan into a true retirement plan.  Your advisor should have tools to assist you, or you can purchase financial software on your own.

3)

Meet with your attorney and financial advisor to discuss estate planning.  Even if you’re well within the estate exemption now, we have no idea what the future holds or where the exemption will be upon your eventual passing.

4)

Go ahead and vote, but then stop thinking about it and instead spend time on things you enjoy and can actually control.  I’ll do my best to take my own advice and I think we’ll all be better off for it!

We will talk again in two weeks.  Until then, enjoy life and don’t get too caught up in the political commotion!

*for additional commentary, please enjoy the below article

Disclaimer: None of the information provided herein is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. Your use of the information is at your sole discretion. The content is provided ‘as is’ and without warranties, either expressed or implied. Integrity Wealth Management LLC does not promise or guarantee any income or particular result from your use of the information contained herein. Under no circumstances will Integrity Wealth Management LLC be liable for any loss or damage caused by your reliance on the information contained herein. It is your responsibility to evaluate any information, opinion, or other content contained.

LOREN SHERMAN

FINANCIAL ADVISOR

CFP® RICP® AIF® CRC® CKA® WMCP®

Phone: 515.221.8406
Email: shermanl@integrityguidance.com

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