Throughout 2024, talk of the election dominated public and private discourse. In most election years, once the country casts its ballots, politics fades into the background of our collective consciousness. That hasn’t happened this time around. The re-election of Donald Trump to the presidency was polarizing — people on both sides of the political fence still have politics at the forefront of their minds.
It’s no different in financial planning circles. Clients regularly ask their advisers, “What should I do with my money now that Trump is going to be president again?” It’s an understandable question, especially given the president-elect’s stated intention to implement radically different economic policies from his predecessor. However, it’s also a shortsighted question.
You need to focus way beyond just the next four years
Americans choose a president every four years, and many people view finance in the same four-year terms. The election of a new president inevitably causes retirement savers to assume they need to make changes in order to react to the new administration’s economic impacts. But for financial planners, four years represents very short-term planning.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When helping my clients develop a retirement strategy, I plan for the next 30 years at minimum. It’s possible to have seven different presidents in that time! Predicting presidential policies three decades in the future is impossible. That’s why it’s better to plan for what we can reasonably predict is likely regardless of who sits in the Oval Office.
Take a long-term look at taxes
One such prediction is taxes. Much has been written on Trump’s tax plans. But it helps to take a wider view. While the Republican sweep of the presidency and both houses of Congress means it’s much less likely the Tax Cuts and Jobs Act will sunset at the end of 2025 as most assumed it would, it’s nonetheless seemingly inevitable that at some point, taxes will increase.
Planning for that eventuality is therefore crucial: Is it better to defer taxes via 401(k)s and IRAs today, risking having to pay higher tax rates in the future, or should you consider converting tax-deferred savings vehicles to their Roth equivalents? The tax bill will be due today, but you’ll avoid potentially higher tax rates in the future.
How about inflation?
Politics distracts from another area of importance as well: Everyone’s still talking about the election, but few are talking about inflation. Some economists worry that Trump’s plans to impose heavy tariffs on imported goods will cause inflation to rise. That’s concerning but, as we recently saw, inflation is a possibility regardless of tariffs. Only planning for inflation when you think a president is about to cause it is riskier than planning for inflation as a matter of course.
It’s a safe assumption that prices will be higher in 30 years than they are today. This means your retirement savings must hedge against inflation; low-interest savings accounts lose value as costs rise, whereas investments with a rate of return higher than inflation gain value.
The bottom line
It’s tempting to focus on immediate and short-term events when considering how to address your finances, but for successful retirement planning, a longer view is necessary. Your financial adviser can help you develop a financial plan designed to weather unpredictable economic events far in the future that could otherwise jeopardize your retirement.
Related Content
-
New South Carolina Income Tax Cut Might Eat Your CashState Taxes South Carolina’s flat income tax bill could have the majority of residents paying higher income taxes. Find out how.
-
Taxpayer Revolt? Why More People Are Avoiding Filing Taxes This YearTax Season It may be tempting to skip filing due to the overwhelmed IRS, but doing so could have financial and legal consequences.
-
Winning Strategies for Financial Advisers as Clients' Lives EvolveHow can the wealth management industry help make life transitions easier for the adviser and the client?
-
How Advisers Can Establish Relationships With HNW ProspectsThese strategies can help to build influence with high-net-worth individuals, who are often looking to an adviser for insight rather than solutions.
-
When Your Car Is Fixed, But You've Still Got the ProblemThis reader's experience with trying to get squealing brakes fixed under an extended warranty mirrors what others are experiencing these days.
-
Stock Market Today: Dow Rises 854 Points From Its Intraday LowIf there's one thing markets hate, it's uncertainty. But uncertainty is all they're getting these days.
-
Are You a Retirement Millionaire Who Is Too Scared to Spend?If you are too scared to spend money in retirement, you may be saddled with regret. Here are three ways to safely enjoy your sizable retirement nest egg.
-
Bigger Social Security Checks Are Arriving in AprilPayments to eligible retired public sector employees will increase starting in April due to the Social Security Fairness Act (SSFA)..
-
5 CDs to Put Your Tax Refund IntoPlanning to get a tax refund this year? Treat your future self with a risk-free way to grow your money. Here are the 5 best CDs to consider.
-
Seven Questions to Ask When Evaluating Personal Loan OptionsTaking out a personal loan too hastily could lock you into unfavorable terms with an untrustworthy lender. Ask these questions before signing anything.
