Retirement Revealed

Understanding how the results of the 2024 election could affect your decisions in retirement.

It’s natural to wonder if political shifts will impact your financial decisions. Many are predicting major changes in legislation and economic strategy due to the results of the 2024 election, and while there is merit in anticipating major changes, I find that there are some general principles of managing your retirement plan that can help you navigate the uncertainties that come with changing winds of politics. With that said, let’s dive into some of the most common questions I’ve been hearing related to finances out of the 2024 election.

Why Elections Don’t Change Core Investment Principles

Each election season, it’s easy to get swept up in the latest political shifts. Maybe the stock market reacts positively or negatively, but does that mean you should make knee-jerk changes to your portfolio? Not necessarily. I often say this on my podcast and to my clients: the key to investment success isn’t trying to predict market swings based on elections or political figures—it’s about aligning your portfolio with your needs and timeframe.

Consider this: if you’re looking to use your funds in the short term, your investments should reflect that, emphasizing stability over volatility. Long-term needs, on the other hand, can typically tolerate a bit more fluctuation because they have more time to recover from market swings. Elections, presidents, and political shifts come and go, but your personal timeline and financial goals remain constant.

The Fed, Interest Rates, and Presidential Influence

I often get asked how presidential elections and Federal Reserve decisions might interact and affect the economy. In the latest example, we saw the Fed drop interest rates recently, coinciding with the election. People wonder if this shift is tied to who holds office, but in reality, the Federal Reserve operates independently. Fed Chair Powell, for instance, has firmly asserted the Fed’s independence from political influence. The Fed’s mission is to focus on economic stability and not to sway with each political wind.

What does this mean for you as an investor? It reinforces the idea that you shouldn’t base your decisions on political shifts. Whether a president wants to cut taxes or pursue particular economic policies, your portfolio’s health is still more dependent on your timeline and objectives.

Social Security: Will It Be There for You?

Social Security will likely go under the microscope in the next few years, particularly in relation to the taxation of benefits. Recent conversations have raised concerns about potential changes to Social Security taxes, especially with the suggestion that taxes could be lowered or even eliminated on benefits. While lower taxes sound appealing at first, they come with trade-offs. If taxes on Social Security benefits were reduced to zero, for example, that would cut about $50 billion annually from the Social Security trust fund—a significant portion of its funding.

If Social Security taxes decrease, it could mean fewer funds for future benefits, impacting the program’s sustainability. While no one can predict the future, the key takeaway here is that while tax reductions may have personal appeal, it’s essential to think about the policy implications. 

Should You Be Doing a Roth Conversion Now?

With the election results, many people are wondering if they should speed up their plans to convert to a Roth IRA. Historically low tax rates, thanks to recent policy changes, have made Roth conversions attractive. However, if recent election results signal that the current administration may extend these lower rates, the urgency to convert may diminish.

Still, a Roth conversion can provide substantial benefits if it aligns with your tax strategy. For many retirees, spreading out Roth conversions over multiple years can minimize tax impact. But remember—financial planning software and tax calculators work on assumptions, which often don’t account for policy changes. Flexibility and the ability to adjust over time will always serve you well.

Maximizing Your 401(k) Contributions

Another common post-election topic revolves around new contribution limits for 401(k) plans. For 2024, contribution limits have increased slightly. If you’re aiming to max out your 401(k), it’s worth recalculating your contributions to take advantage of this extra room. And for those between ages 60 and 63, there’s a new opportunity to put aside even more with catch-up contributions. However, while an extra $500 or so may not seem significant, compounding can make a difference over time, so don’t overlook these adjustments if you’re nearing retirement.

The Proposed Change to Capital Gains Tax and Inflation Indexing

If you’ve heard discussions about the potential for capital gains to be indexed to inflation, you might be wondering how this could affect your portfolio. This proposal aims to adjust the taxable amount on long-term investments by accounting for inflation. For example, if you bought a stock for $10 and sold it for $20 after ten years, indexing for inflation might mean that only $7 of that $10 increase would be taxed as a capital gain.

If enacted, this could benefit investors by reducing the tax burden on long-term gains, but it’s still just a proposal. My advice here is simple: let’s wait until we see concrete policy before making changes to your investment approach. Holding onto stocks for the long term, regardless, continues to be a beneficial strategy.

Keep Politics Out of Your Portfolio

Finally, let’s talk about the elephant in the room: political affiliation. Time and again, I’ve seen clients worried about market performance based on who wins an election. Yet history has shown that the market has performed relatively consistently over time, regardless of the president. So rather than making decisions based on who’s in office, focus on what matters to you: when you need the money, the type of risk you’re comfortable with, and what you hope to achieve.

This election cycle has been no different from the last in terms of stirring up financial worries. But staying steady and focusing on your plan has always been the winning approach for those in or approaching retirement. Elections are just a moment in time, while retirement requires a well-thought-out strategy that you can maintain through all of them.

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Additional Links:

• – “TRUMP WINS, NOW WHAT FOR YOUR INVESTMENTS?” – Mr. Retirement YouTube


• – “Why You Need to Rebalance Your Investments (2024)” – Mr. Retirement YouTube

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