Managing your retirement savings and spending is always a juggling act, with many balls all requiring careful control to keep everything airborne. This task only gets harder when you must do it while balancing on unsteady ground. But such is the reality facing retirees and near-retirees as President Donald Trump embarks on his second term.
From the threat of tariff wars and inflation to uncertainty about health care costs and stock market volatility, retiring in today's shifting political landscape is not for the faint of heart. But there are ways you can retake some control over your financial future. The trick is knowing how to alter the arc of your throw so those juggling balls stay in the air.
Here are five ways your retirement spending and saving should change under the Trump administration.
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1. Manage your retirement savings and spending by changing your withdrawal rate
Rising costs are one of the biggest threats facing retirees under the current administration. Trump pledged to impose tariffs, or taxes on imported goods, on several — if not all — countries. While he pressed pause on tariffs on Canada and Mexico, the 10% additional tariff on Chinese goods is in effect as of earlier this month.
Tariffs increase the prices of imported goods. For retirees living off of their savings, these higher costs could mean you must withdraw more than originally planned to cover your expenses. However, increasing your withdrawal rate should only be done with caution.
"Retirees should hold off until sustained higher prices kick in," says Angelo DeCandia, professor of business and accounting at Touro University. "Only then should they alter their original schedule and any modifications should be done with moderation as conditions may change again."
2. Pay attention to bond duration
Bonds should be a staple in retiree and near-retiree portfolios, DeCandia says. But don't make the mistake of believing bonds are completely safe, especially under the Trump administration.
There are two primary risks bondholders face. The first is default risk, which occurs when the issuer fails to repay its debt. This can be managed by choosing higher-quality bonds, rated BBB to AAA, DeCandia says.
The second major risk bondholders face is harder to understand and avoid. It's interest rate risk, and occurs when bond prices fall as a result of rising interest rates.
"This phenomenon affects all bonds, even those rated AAA,," DeCandia says. "It is a mathematical result of the way bonds are priced and is the more likely way in which bond investors will lose money."
The price increases from Trump's tariffs could spur inflation, which is already above the 2% Federal Reserve target. This may push the Fed to raise interest rates, increasing the interest rate risk on bonds.
The good news is that interest rate risk can be managed through a metric called duration. "A bond’s duration tells us what percentage a bond’s price will fall if bond yields rise 1%," DeCandia says. For example, a bond with a duration of 5 would fall by 5% if yields rise by 1%. So, the higher the duration, the greater the interest rate risk it holds.
You can find duration for bond mutual funds as well as individual bonds. Bond fund duration is the weighted average duration of all the bonds in the fund's portfolio. It's published by the mutual fund company or on third-party sites like Morningstar, typically under the risk section.
3. Consider actively management funds
There are few things the stock market hates more than uncertainty. When the future is unclear, volatility is likely to arise as investors try to price in different potential outcomes. Times of uncertainty and volatility can be when actively managed funds thrive.
Actively managed funds are run by a professional manager who decides what to buy and sell, and when. This is in contrast to passive funds, which merely copy what an underlying benchmark like the S&P 500 does. Passive funds come with lower expense ratios, but they also mean you're going to get market returns. If the S&P 500 drops 10% because Apple falls out of favor, so will your S&P 500 fund.
By contrast, an active fund manager can see bad news about Apple and decide to shift into other stocks. This could help minimize the damage to the fund's overall returns. However, actively managed funds are not always a panacea for volatility.
"Moving your investments from a passive strategy to an actively managed fund in order to deal with market volatility may not actually work if the new fund manager’s investment objectives fail to consider volatility," DeCandia says. "Some fund managers embrace volatility as an opportunity to generate bigger returns in the long run, not actually seeking to avoid volatile downswings."
Active management also comes at a higher cost and doesn't always outperform. In fact, nearly 85% of U.S. large-cap funds underperformed the S&P 500 over the past 10 years.
"The key is to study the approach to volatility that each fund manager takes," DeCandia says. Read the fund's prospectus for a detailed description of its investment strategy. You can also use metrics such as standard deviation and beta to see exactly how volatile the fund is over time. If you're going to pay more, you want to ensure you're getting your money's worth, either in terms of higher returns or lower risk.
4. Save more to cover health care costs
"Like tariffs and higher prices, Medicare’s future is also at risk due to the possible actions of the current administration," DeCandia says. "Uncertainty is abundant and health care is a major part of any retiree’s budget."
Trump has vocalized support for Medicare and helping seniors minimize health care costs in retirement. However, he is also eager to revoke the previous administrations' orders. These include the Inflation Reduction Act (IRA) and perhaps the Affordable Care Act (ACA), which lower the costs of healthcare. Both Acts expire this year. And if not renewed, could mean higher healthcare costs for retirees and pre-retirees.
It is not only an issue of cost, but also quality of service, DeCandia says. Even if you're in good health, you should consider the potential costs of failing health as you age.
"Some people even choose to work a bit longer in order to have more control over their medical care," he says. "That is a choice that each person must consider, looking at their own health history and maybe even the health history of their spouse."
5. Work longer
Continuing to work past your intended retirement age is seldom the answer any near-retiree wants to hear. However, it could be the answer to many problems retirees face under the Trump administration.
Working can provide supplemental income, helping you delay or reduce withdrawals from your retirement portfolio. And if your job provides health coverage, it could help you reclaim some control over your medical costs.
"It's not uncommon these days for people to work into their 70s even after they start collecting Social Security payments," DeCandia says. "The worst thing that can happen is that they will be better prepared for the day when they actually do retire."
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