Yahoo Finance I’m a Financial Planner: What a Biden Win in November Means for Your Retirement Savings
It’s hard to say with certainty what’ll happen if President Joe Biden wins the next presidential election, but financial planners John F. Pace and David Blain have their predictions. Future policies under the continued Biden administration could have an impact on inflation, tax-advantaged retirement accounts and Medicare — all of which could affect your retirement savings.
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With the election only a few months away, it’s good to be prepared for whatever changes may come — good or bad. Here’s what a Biden win in November could mean for your retirement savings.
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Inflation Will Continue To Rise but Could Eventually Stabilize
As always seems to be the case, inflation is on the rise, an issue presidential candidate Biden is keen on addressing. Already, Biden has made some strides in trying to combat inflation — namely through the Inflation Reduction Act of 2022 and his spending plan. And while this could work in retirees’ favor, some experts believe it could also have an adverse effect.
“In terms of inflation, the Biden administration’s continued focus on infrastructure and social programs could exert upward pressure on inflation unless offset by higher taxes or spending cuts,” said David Blain, CFA, the chief executive officer at BlueSky Wealth Advisors. “This was observed in recent years when similar policies initially drove inflation higher.”
At the same time, Blain said that it’s possible that these changes could help stabilize inflation in certain industries. If they do, it could end up lowering costs and help individuals stretch their retirement savings further.
John F. Pace, CPA at Pace, CPA, agreed that Biden’s investment in social programs and infrastructure could help alleviate some inflationary concerns.
“Historically, I’ve seen similar government spending initially drive inflation higher but stabilize with targeted sector improvements,” he said.
However, he doesn’t think it’ll happen all at once. Along with this, even if inflation drops to the Federal Reserve’s 2% target, something that could happen even if Biden doesn’t get reelected, there could be other repercussions — particularly regarding interest rates.
Whenever the government borrows money, it puts an upward pressure on interest rates. To reach a lower inflation rate, or to stabilize it, the Fed may have to raise interest rates. This can make acquiring financing much more expensive. The good news is that this is unlikely to affect retirees who don’t intend to borrow money.
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Tax Implications Could Impact High-Net-Worth Retirees
“Biden has proposed raising taxes on high-income individuals and corporations,” Blain said. “This could lead to changes in capital gains taxes and impact how people approach their retirement savings strategies.”
The potential tax implications could reach retirement accounts — like IRAs — as well.
According to Blain, a Biden reelection could mean significant changes to the way retirement accounts are taxed and contribution limits. Retirees with substantial assets or income may need to reconsider their investment strategies and diversify with more tax-advantaged accounts in preparation for future tax policy changes.
But it all depends on whether or not Biden’s proposals garner enough legislative support.
“Changes to deductions or benefits for higher-income contributors to IRAs and 401(k)s could prompt a shift in retirement planning strategies,” Blain said. “As seen in past policy shifts, this may drive a preference for Roth IRAs, where taxes are settled upfront…The critical takeaway for investors is to stay informed and consider professional advice to adapt to these evolving policies.”
Contrarily, the average retiree might not see as much of an impact on their retirement savings.
Expanded Healthcare Policies Could Alleviate Financial Stress
According to a press release earlier this year, the Biden-Harris administration is focused on strengthening Medicare to better protect and serve senior citizens. This is potentially good news for the 65 million or so Americans currently on Medicare — and their beneficiaries.
One of Biden’s key policies right now is to support Medicare Advantage private insurance plans in hopes of getting quality care to those who need it — like seniors and individuals with disabilities. This means cracking down on predatory marketing tactics, verifying accurate payments and preventing healthcare denials when deemed necessary.
The Biden administration has also proposed raising Medicare Advantage payments by 3.7% — or $16 billion in total. This could result in lower overall healthcare costs for older Americans, thus alleviating some of the financial burden on their retirement savings.
“Healthcare policies under Biden could lead to expanded Medicare and increased subsidies for health insurance,” Blain said. “This would likely reduce out-of-pocket costs for many individuals, a trend we’ve seen benefit clients in previous similar policy implementations.”
Higher Payroll Taxes Could Extend the Social Security System
Medicare isn’t the only social program that could be affected by a Biden reelection. Social Security could be, too.
According to Pace, Biden has proposed increasing payroll taxes on higher earners in particular. The goal here is to reinforce the system’s overall financial health and ensure it’ll continue to provide financial benefits to retirees. If this happens, less affluent retirees could benefit from higher benefit amounts — or longer-term security.
Safeguarding Your Retirement Savings Now
These potential changes could affect your retirement savings, so it’s important to be prepared for that. Staying informed and being flexible and proactive with your financial planning can help prevent any unwanted surprises and keep you on track with your future retirement — regardless of who gets elected in November.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: What a Biden Win in November Means for Your Retirement Savings
