Trump's Potential Impact on Retirement Savers

November 16, 2016
DMD Staff

What’s in store for investors as they near retirement.

Earlier this week, we covered how the election of Donald Trump could affect the recent DOL legislation that would increase investor protections in their dealings with financial advisors. But there are many additional aspects of a Trump presidency that could affect investors. Let’s take a look.

Related: How Trump’s Presidency Affects Small Businesses — Like Your Dental Practice

First, though, a cautionary note: As any 2016 pollster would surely attest, predicting the future is not just difficult for the worlds’ meteorologists; it can be difficult for anyone. And predicting the behavior of this particular President-elect seems particularly foolhardy. Still, it’s worth looking into what the environment might look like, based on the overall Republican agenda and what Trump has said during the campaign and since his election. Not that those two things necessarily match up!

Social Security and Medicare

Despite the fact that the nation is rapidly aging, domestic policies affecting retirement were rarely an issue during the Presidential debates and didn’t seem to get much airtime from either candidate. Typical hot-button issues affecting the soon-to-be-retired—including possible Medicare reform—were pushed to the back burner if they were discussed at all. But if the early analysis of the voters that pushed Trump to victory prove accurate, it’s clear that the economic frustrations of older, middle-class voters played an important role alongside immigration and foreign policy in the election results. It’s these middle-class voters who have added their voices to those displeased with income inequality, the near-death of pension plans, and the possibility of shrinking Social Security benefits.

Yet, the needs of this group of voters rarely seems among the priorities of the party in power. Trump’s campaign statements that he will not cut Social Security or substantially alter Medicare don’t square with a party hungry to reduce entitlement programs and government spending overall, while also favoring tax cuts. “Cut taxes and keep benefits the same” sounds great at a rally, but how realistic is it?

The simple math is that Social Security will soon be insolvent without either a massive increase in tax revenue or a massive decrease in money paid. What shape any reform might take is anyone’s guess, but those nearing retirement age should pay close attention to key issues such as the possibility of privatizing part of the program or increasing the age of eligibility for Social Security or Medicare. Banking your retirement date on the continuation of the status quo seems risky at best.

For those farther from retirement, keeping the status quo on Social Security has different implications. The latest math indicates that the program will run out of money in about 18 years. If you’re counting on Uncle Sam being the biggest contributor to your retirement income … well … don’t do that. Don’t do it under any circumstances, but especially don’t do it if the program doesn’t undergo a major directional shift.

Retirement accounts

We covered the immediate reaction of Dow futures to a surprising Trump win here. But as we noted there, it will be months before we’ll truly know how financial markets may react to a President Trump. Thus, advice to keep a diverse portfolio is as timely now as it has ever been.