retirement planning

Election 2020: 3 Things Retirees Should Pay Attention To

When it comes to your money in retirement, here are three main issues that seniors should pay attention to before they cast their votes in the 2020 presidential election. Donald Trump or Joe Biden: Which candidate’s policies fare better for retirees?

The coronavirus is making this election year different from any other in history, and while we can’t predict how Wall Street will react to the presidential race, we can look back at history to gauge stock market performance in an election year. The stock market ebbs and flows with a four-year election cycle. Historically, market performance is worse in the first half of a president’s term compared to the second half. Some believe party affiliation matters when it comes to stock market performance. While history shows stocks have performed slightly better under Democratic administrations, performance hasn’t varied much when either party is in the White House.

No matter which candidate you plan to support, it’s important to be aware of how future policies could impact your finances now and in retirement.

No. 1: Taxes

Whether you’re still working or in retirement, taxes are an important aspect of our finances to pay attention to. The 2017 Tax Cuts & Jobs Act brought some of the lowest tax brackets in history. Most of the individual tax cuts expire at the end of 2025, and many believe our taxes will go up, especially if the government continues its spending to stimulate the economy.

Democratic presidential nominee Joe Biden says his tax plan will increase taxes on the wealthy and give tax breaks to the middle class. The highest individual tax rate would go from 37% to 39.6% under Biden’s plan. He has also proposed tax changes to help senior citizens and their caretakers, including increased tax benefits for older Americans who pay for long-term care insurance with their retirement savings and a tax credit for family members providing long-term care for their aging loved ones.

President Trump has expressed interest in making certain rules in the Tax Cuts and Jobs Act permanent if he wins a second term. Trump has also talked about providing more tax relief for the middle class. While he hasn’t yet laid out an official plan for taxes if he’s back in the White House, Trump’s current tax proposals have been focused on stimulating the economy right now.

No. 2: Social Security

While Social Security may not be on everyone’s mind when we vote on Nov. 3, the future of the government program is something that will impact all of us sooner or later. Our current recession is already impacting Social Security benefits; new numbers show benefits for those who turn 60 this year will be permanently reduced by about 9%. If you’re an average earner who will wait to claim Social Security until you hit full retirement age (which is 67 for those born in 1960 or later), your benefits will be reduced by about $2,500 a year.

Democratic nominee Joe Biden wants to expand Social Security by increasing payments. To do so, he wants more income from high earners to be subject to payroll taxes. In 2020, wages above $137,700 are not subject to the payroll tax. Biden’s plan calls for earnings over $400,000 to be subject to the tax.

On the other hand, President Trump is calling for payroll taxes to be eliminated. He signed an executive order in August deferring payroll taxes through the end of the year. The problem this poses for Social Security is that the government program is funded through the payroll tax; last year, nearly 90% of Social Security’s income came from payroll taxes.

No. 3: Medicare

Health care is the biggest expense we face in retirement, which is why retirees should pay attention to how this election will impact Medicare. Trump and Biden offer very different views on the government’s role in our health care system.

While Biden has rejected a single government health care plan (what some refer to as Medicare for All), he is a strong supporter of Obama’s Affordable Care Act. Biden wants to expand the law and has called for a Medicare-like plan for those who live in a state that hasn’t expanded Medicaid eligibility or cannot afford insurance in the marketplace.

President Trump takes a different tack. Although he promised to replace the Affordable Care Act in his first term, President Trump hasn’t shared details of a proposed health care plan if he were to win a second term.

Elections are something to keep an eye on, but they are not something that should be driving investment decisions. This is why it’s important to work with a financial adviser to ensure your retirement plan addresses taxes, Social Security and health care and can weather the ups and downs in the market.

About the Author

Tony Drake, CFP®, Investment Advisor Representative

Founder & CEO, Drake and Associates

Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.

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