Important points
A recent survey found that the majority of US investors are concerned about how the upcoming presidential election could affect their personal finances. Key concerns center around the election’s potential impact on retirement plans, the stock market, and the tax system. Experts talk about stock market volatility. While policy uncertainty is expected in an election year, investors should stick to their long-term plans.
As the US presidential election approaches, the majority of US investors are concerned about how the election will affect their personal finances.
The latest MassMutual Consumer Spending and Savings Index report found that 86% of those surveyed are concerned about the impact of the presidential election on their “day-to-day finances.” About a quarter of respondents said personal finances were the most important factor in deciding who to vote for in November’s race between Republican candidate Donald Trump and Democrat Kamala Harris.
Most of the concerns revolve around how the new administration will affect retirement plans, stock market trends and tax policy, according to other surveys and financial advisors.
Ayako Yoshioka, Director of Portfolio Consulting at Wealth Enhancement, said: “For those who are worried about the election, we recommend talking to an advisor to ensure your financial plans are sustainable, regardless of who is in power.” I would like to recommend that you do that.”
Impact on retirement planning
A recent survey by Wealth Enhancement showed that 80% of respondents expect the election to have some impact on their retirement plans.
Some investors are also wondering how the outcome of this election will affect how much they can rely on programs like Social Security and Medicare, and how the next administration will respond to high prices. I am concerned about this.
Even though inflation has fallen, the prices of many goods and services are still rising. About half of those surveyed said high inflation has derailed their retirement plans, delaying their retirement by an average of 8.5 years.
Financial advisers answering questions from anxious customers say disruption may be expected.
“Elections technically involve some uncertainty, but it’s relatively short-lived,” said Megan Gorman, managing partner at Checkers Financial Management, adding that advisers believe investors are “weakening the noise.” “We can help you eliminate your worries and focus on your long-term goals.” ”
Possible stock market volatility
Markets may react temporarily to big news, including election results. Nearly a quarter of respondents to the Wealth Survey were worried about what the stock market would do post-election and how it would affect their portfolios.
Jamie Bosse, CFP at Kansas-based CGN Advisors, said that while there has been volatility in election years, most past presidential election years have generally produced positive market returns.
“There have been 24 election years (since 1927), and out of those 24 years, only four election years have negative market returns (for the year),” Bosse said. The four years of negative returns (1932, 1940, 2000, and 2008) include the Great Depression of 1932 and the Great Recession of 2008.
In fact, a T. Rowe Price analysis of data dating back to 1927 found that the average annual return of the S&P 500, a barometer of U.S. stocks, is not significantly different than in non-election years (11 %). election year (11.6%);
“We believe that investment decisions should be based on long-term fundamentals, not short-term political outcomes, political or otherwise,” the researchers wrote in their analysis of T. Rowe Price. , trying to time the market based on short-term dynamics is very difficult.”
Tax uncertainty
Mr. Bosse and Mr. Gorman have received questions from clients about future presidents’ tax plans. There’s a good reason for that.
The Tax Cuts and Jobs Act (TCJA) is a law enacted in 2017 that includes lower income tax rates, an increase in the standard deduction, and an increase in the inheritance tax deduction. The law is set to expire Dec. 31, 2025, and could further complicate taxes for some people if Congress doesn’t act.
Mr. Gorman’s wealthy clients are particularly concerned about the TCJA’s provisions related to state and local tax (SALT) deduction caps and expanded estate tax exemptions.
Catherine Valega, a CFP at Boston-based Green Bee Advisory, said she is talking with clients about considering converting to Roth IRAs before the potential change in income tax classification.
This strategy moves pre-tax retirement funds from a traditional IRA to an after-tax Roth account. You may have to pay income tax on the conversion, but your withdrawals will be tax-free once your money grows. If you expect your taxes to rise in the future, such a conversion may prove tax efficient.
“Thinking about conversion is important,” Vallega said, adding that investors need to think about questions like, “Are we going to convert this year?” Will we be able to narrow it down next year? What does our tax budget look like?
