What Trump’s election really means to employees’ retirement plans
Donald Trump beat out rival Hillary Clinton in a nail biter election on Tuesday night, but what does a Trump presidency mean for the retirement industry?
Paul Christopher, head global market strategist for Wells Fargo Investment Institute, says that market volatility is a given after an election because retired investors don’t like to see the markets pull back. Those who are still working don’t like it either, he says.
Christopher predicted Monday that the markets would cheer a Clinton win because “they like candidates who are predictable and have well-elaborated plans. Clinton certainly has well-elaborated plans. She is considered an insider and her plans have been known for a number of years.”
Because Trump was the great unknown and was less specific about his plans for the future, markets worldwide reacted unfavorably.
Retirement security has not been a No. 1 priority for either Trump or Clinton. When the candidates were asked about retirement, including during the debates, Social Security and Medicare were the only programs that were ever mentioned.
Trump told the AARP in an interview that his plan is to pass comprehensive tax reform by “removing carve outs for special interests and reducing the number of brackets.” He also said he would attempt to eliminate the alternative minimum tax and the death tax. Improving the economy and repealing the Dodd-Frank and Affordable Care Acts, he told the AARP, would “bring market forces to bear that will increase competition and lower costs to consumers.”
The one thing most experts agree on is that nothing will happen immediately. It always takes time for a new administration to gather steam.
“I look at it as an opportunity. There could be bad things that come out of this next government. There are plenty of ideas we dislike as far as investing goes; ideas we think will be negative for the economy, but dilution and delay comes into play and it will take a while for those things to take effect,” Christopher says.
Christopher doesn’t encourage investors to pull out of the markets or rebalance just yet.
“Wait to see what the president’s new priorities are and how Congress plays in the sandbox with the new president, but be prepared to make moves later on, based on the folks occupying seats in Washington,” he says.
Trump has not said anything about the markets except that he wants to grow the economy so that Social Security and Medicare don’t continue to be a drain.
“With Secretary Clinton, we have more details than for Trump. As for many other policies, some of the stuff Trump says is not fully fleshed out and some of it is contradictory,” says Christian Weller, senior fellow with the Center for American Progress and a professor in the Department of Public Policy and Public Affairs at the University of Massachusetts Boston.
As for retirement and retirement security, Weller says there are three large buckets: Social Security, private retirement savings outside of Social Security, and the costs associated with retirement.
Both candidates have said they will not cut Social Security. Clinton said she would expand the program “so that every American can retire with dignity and respect, including women who are widowed or took time out of the workforce to care for their children, aging parents, or ailing family members,” according to the Democratic Party platform unveiled in July.
Of course, expanding Social Security comes with a cost, which Clinton and the Democrats have said they would cover by asking those at the top of the pay scale to pay more. They proposed taxing some of the income of people earning more than $250,000.
Trump has not said whether he will expand Social Security, nor how he would pay for Social Security over time, Weller says.
Wells Fargo believes that Social Security will become an issue in the future. Maybe not this term, but the following term, Christopher says. He points out that the Social Security Trust Fund is going to run out of money by the 2030s at its current rate of burn. It can be fixed, he said, if Congress and the President are willing to take the necessary steps.
The Republican Party supports increasing the minimum age at which people can collect Social Security. Many Republicans have expressed interest in cutting benefits by reducing the amount retirees receive or by taking away benefits for wealthy retirees. Other options that have been proposed include lifting the cap on Social Security tax payments. Currently, once you pay taxes on the first $118,500 of income, you don’t have to pay any more for the rest of the year, Christopher said. Raising that cap would increase the funds available to the trust fund.
“The problem is that all of the options are politically unpalatable,” Christopher says.
Some in the industry believe that a change in the White House will mean that the artificially low interest-rate environment will go away and people will see interest income again on their fixed annuities and personal savings accounts.
Trump has said in interviews that as a developer he loved low interest rates, but he was worried that they were “creating a bubble, and the bubble could explode,” according to Bloomberg.
“Both candidates have opened the door to caregiving, although Hillary Clinton made it a cornerstone of her campaign and pushed it further in helping families defray the costs of caregiving, and that is a huge chunk of money. If you get tax credits for caring for a spouse, that is money you don’t have to save,” Weller says.
Clinton included both children and elders in her caregiving proposal, while Trump included only child care.
While Donald Trump hasn’t specifically said anything about eldercare, Weller said he wouldn’t be surprised if Trump included eldercare in a future plan.
In the private retirement space, neither presidential candidate focused any proposals on improving more traditional retirement plans such as pensions and 401(k)s.
“Since Donald Trump is such a unique political quantity, it is difficult to say what he would do in that space,” Weller said. “There’s no basis on which I could reasonably speculate without making stuff up.”
Trump’s biggest plan seems to be cutting taxes. But as far as retirement security goes, “this is not a space that is ever written about or talked about. At least with Hillary Clinton, there are enough people in her orbit associated with these policies,” he said.
Tyler Bond, program assistant at the National Public Pension Coalition, said in a statement that his organization believes “that every American who works hard and plays by the rules should have access to a secure and dignified retirement. Regardless of the outcome of today’s election, we remain committed to protecting the retirement security of teachers, firefighters, nurses and millions of other public employees across the nation. We will be intently watching the election results not just in the presidential campaign, but in gubernatorial campaigns and state legislative campaigns across the country.”