Discussing impacts of the presidential election on financial plans

October 11, 2016 by Alex Becker

The White House which one of the candidates will live in after the presidential election

About the author:

Alex Becker

Software developer in test

Alex began his career at Advicent as a partner support specialist and later moved into quality assurance, allowing him to utilize the insights he gained from partners to further improve Advicent products. Additionally, Alex constantly strives to stay up-to-date on current topics within the FinTech industry.

The 2016 presidential race has been a whirlwind of insults and scandal thus far. With the election right around the corner, advisors need to keep in mind that presidential elections are always an important time for our country and the election outcome may affect the financial plans of clients. Throwing bias aside, advisors must be prepared to discuss these topics, able to understand each position, and able to comprehend the impacts on their clients’ financial futures.

While all the plans outlined below would still need legislation to go into effect, these three topics have recently become more front and center in politics. Advisors must be prepared to discuss these topics with clients in the wake of the presidential election.

Social Security

Social Security has quickly gained a lot of momentum on the political stage with a predicted insolvency date of 2034 from the 2016 Trustees Report, and many people living longer than they have in the past. This topic must be discussed, and both candidates have made statements regarding Social Security.

Hillary Clinton believes that “Social Security isn’t just a program – it’s a promise.” She understands that the system needs to be corrected and will do so by asking the highest-income Americans to pay more. This will allow her to keep the retirement age at 65 and expand the Social Security system for those who really need it. In the financial planning realm, this will not shake up too many plans for those who plan for high-net-worth clients and clients who qualify for the expansion.

Donald Trump has made statements about Social Security; however, he does not mention the words “Social Security” on his website. The most informative statement is, “If we are able to sustain growth rates in GDP that we had as a result of the Kennedy and Reagan tax reforms, we will be able to secure Social Security for the future.” Advising that our best bet to keep social security alive is to have a good economy. This entails that no changes would need to be made to a financial plan in regards to Social Security at this point. However, Social Security would remain top of mind as no measures would have been taken to address the looming insolvency.

Economy

The stock market has not seen much volatility since Brexit, but be prepared for that to change. With the uncertainty of who the next president will be, the markets also experience uncertainty. Each candidate has plans for the economy which will produce additional uncertainty when they try to enact their plans.  There is a light at the end of the tunnel. One study shows that overall, “neither risk nor return is significantly different across the presidential cycle.” However, knowing how each candidate plans to bolster the economy provides important discussion points.

Hillary Clinton has many plans for our economy – to name a couple she wants to reform Wall Street and level the playing field for small business. Each of these could cause ripples throughout the economy and financial plans. By reforming Wall Street, Clinton plans to impose a risk fee on the largest financial institutions. This could affect financial plans as these institutions may try to shift the fee onto the end consumers. Clinton also plans to make starting and growing a small business easier by incentivizing health care for small businesses, expanding the health care tax credit via the Affordable Care Act. If a client has a small business, this will absolutely affect them and their employees.

Trump also has an economic vision for our country, largely dealing with reform. Due to excessive regulation costs, Trump wants to put a temporary pause on new regulations and review prior regulations that are not obligated by Congress or public safety. With an annual trade deficit Trump plans on renegotiating NAFTA, withdrawing from the TPP, and applying tariffs and duties to countries that cheat. Both of these reforms would have broad effects that would most likely affect one’s financial plan in one way or another; however, it may take some time before these effects are felt.

Taxes

With the total U.S. government debt nearing $20 trillion and showing no signs of slowing down, this presidential election is a hotbed for discussion on how we, as a country, will deal with our debt. Taxation is a main discussion point, and both candidates want to reform our taxes. As mentioned previously, both candidates plan on utilizing tax reform in order to get our country moving in the “right direction.”

Hillary Clintons tax reform will affect many financial plans. She would like to apply a “fair share surcharge” on the rich to ensure the wealthiest are not able to pay lower tax rates. In addition, she will close loopholes which would bring more money back into the U.S. While closing loopholes, Hillary will help small businesses as they spend more on tax compliance than larger firms. Finally, she wants to provide tax relief to the middle class, as they have seen rising costs without rising wages. All of these things will affect the financial plans of many people around the world.

Trump’s tax reform will also effect financial plans everywhere because he wants to change individual taxes. Taxes will have only four brackets, with a top tax rate of 33 percent. Capital gains will remain the same, but the alternative minimum tax, Obamacare tax on investment income, and death tax will be repealed. An added childcare deduction and spending rebates on childcare expenses would be available for all but the wealthiest Americans. Finally, Trump did not forget about business. He would lower the business tax rate from 35 percent to 15 percent and eliminate the corporate alternative minimum tax. Clearly, each one of these measures would change many financial plans in a potentially drastic way.

Hopefully this quick summary of the candidates’ positions on the political battlefield helps to prepare you to discuss these topics. Remember to throw bias aside and offer advice from an informational standpoint.  

Prepare your clients for the impacts of the 2016 presidential election. By utilizing FinTech, such as the NaviPlan® financial planning software from Advicent, advisors can provide their clients with comprehensive plans to ease concern about their financial future.