Donald Trump’s unexpected win has led to a host of questions about the future of the economy, Social Security and other key issues that are yet to be answered. One question that many advisors are asking is how his policies could impact the lives of retirees and those getting ready to retire. He will have substantial power to influence this issue, as he will be leading a Republican-controlled Congress for the next two years. Here are some ways that the Trump administration may impact the retirement landscape. (For more, see: Trump Administration: What's Next for Corporate America?)

Potential Impact on Retirement

  • Social Security: Trump has stated that he does not intend to increase the retirement age, cut benefits or raise FICA taxes in order to replenish the system. At the present time, Social Security will become unable to pay its benefits in the year 2034. Trump’s solution to this dilemma is simple: economic growth. He says that his economic policies will drastically cut taxes for business and create millions of new jobs, so that there are more workers paying into the system in the future to keep it afloat. But Trump’s proposed tax cuts may create an even wider deficit, which could in turn put pressure on the program. His economic growth plan can also be viewed as a gamble, because if it fails, it won’t be apparent for a long time to come and by then it may be much more expensive to fix the system.
  • Automatic IRAs: Less than three-fifths of all American workers have access to an employer-sponsored retirement plan. For this reason, five states have gone ahead and passed laws that require employers to either sign up their employees in their retirement plans or set them up with a portable IRA that they can contribute to. President Obama approved of these plans, but some financial groups have been opposed to these measures and they may persuade Trump to block them at the federal level.
  • Improved 401(k) plans: Both Democrats and Republicans as well as consumer advocacy groups have lobbied for improvements to the retirement plan sector. It is too easy for employees to simply cash out their plans when the leave their employer and often too onerous for employees to roll their funds into another plan or account. Trump may be prompted to take action in this area to simplify and streamline the bureaucratic process for rollovers and transfers. Several proposals have already been made in this area and Trump’s administration could allow one or more of them to pass.
  • Financial Advice: The Department of Labor’s new fiduciary rule has been the source of much debate and concern among financial advisors, many of whom feel that the DOL has overstepped the bounds of its authority. Trump may move to block this rule or scrap at least some portions of it, and one of his top advisors has compared this rule to the Dredd-Scott Decision that preceded the Civil War. Trump may also seek to overturn the Dodd-Frank Act that was passed a few years ago. Obviously, he will need the support of Congress to do this. (For more, see: How Secure is Social Security?)

The Bottom Line

Trump's plan to revitalize Social Security through job creation carries with it the risk that it may not pay off, and by the time that becomes apparent, we could be facing disaster. It is highly possible that he will enact some form of legislation designed to encourage or mandate additional retirement savings, but there is no concrete information available yet. Time will tell how Trump’s economic policies impact the landscape of retirement in America. (For more, see: What Trump's Presidency Means for Advisors, Retirement.)

 

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