What Trump's win could mean for older Americans
Now that the presidential election is over, now is a good time for near-retirees and retirees to review personal financial plans and explore some practical issues that might arise under a Donald Trump administration. You’ll want to make sure you’re prepared to deal with possible future changes.
Here are four issues older Americans should keep an eye on:
Repeal of the Affordable Care Act
Trump has repeatedly pledged to repeal of the Affordable Care Act (ACA) as a high priority, and the Republican-led Congress is likely to agree. So far, details about any possible replacement program are scant, if there will even be a replacement.
Currently, the ACA allows pre-Medicare retirees to purchase medical insurance without exclusions for pre-existing conditions. Retiring before age 65 without medical insurance is a deal-breaker for most people. As a result, if you’re thinking of retiring in the next year or two and you’re under 65, you’ll want to make sure you can obtain medical insurance in case the ACA is repealed without a replacement.
Here are some possibilities:
- If you’re covered by a medical plan at your work, you can buy COBRA insurance to continue your that coverage for up to 18 months after you leave work. There are no exclusions for preexisting conditions, although you’ll be paying a higher premium compared to what you paid when you were working. This means you could retire at age 63-1/2 and would be able to bridge the gap until you’re eligible for Medicare at age 65.
- Some employers allow eligible retirees to continue their medical insurance coverage after they retire, usually with higher monthly premiums. Or some employers may offer a longer period for continuing medical coverage under COBRA. You’ll want to investigate the options at your workplace as part of your retirement planning.
- If your spouse works and is covered by a medical plan, you might be able to obtain spousal coverage without an exclusion for pre-existing conditions.
- You might be able to find retirement work that offers medical coverage as part of the deal.
None of these strategies are ideal, however, so you’ll want to investigate all your options to determine the best fit for you. If you’re planning to retire before age 65 in the next few years, you’ll want to carefully follow any ACA developments. In any event, you’ll want to have a strategy in place for bridging the coverage gap until you’re eligible for Medicare at age 65.
Your asset allocation
If you’re unsure of the possible impact a Trump presidency could have on your investments, you may want to revisit your asset allocation. Stocks have been rising in recent years, so you may have more allocated to equities now compared to a few years ago. See if you’re still comfortable with the amount you’re currently devoting to stocks.
Here’s one way to look at it: Keep any savings you absolutely need to cover your basic living expenses in investments that don’t drop when the stock market crashes, including money market funds, stable value funds, bonds and annuities. You should be able to afford to lose 50 percent of the amount you invest in stocks without it ruining your life. If we have a repeat of the 2008-2009 crash, your stocks could drop by 50 percent.
Thinking about the asset allocation that works for you, and rebalancing if necessary, is something you should be doing every year in any case, not just as a reaction to the election.
Social Security and Medicare
On the campaign trail, Trump promised not to reduce Social Security or Medicare benefits. This position isn’t in alignment with the Republican party’s platform, which says changes to Social Security are needed, although it makes no specific recommendations other than to reject tax increases. The party’s platform position would change Medicare into a voucher program for workers under age 55.
Both Medicare and Social Security have funding problems, and there are only two ways to put these programs into financial balance: increase taxes or cut benefits. Given the Republicans’ aversion to tax increases, it seems likely they’ll look for ways to reduce benefits.
Chances are very good chance that they wouldn’t reduce Social Security benefits for retirees or for people within a few years of retirement, but they could taper future cost-of-living increases to help Social Security’s finances. Medicare expenditures could be cut several ways, including by increasing deductibles, co-payments and monthly premiums, or restricting your choice of providers.
You’ll want to carefully follow any developments regarding both of these critical programs.
The Department of Labor’s fiduciary rule
Earlier this year, the U.S. Department of Labor issued regulations that require financial advisers and institutions to act as fiduciaries when giving advice on retirement accounts such as 401(k) plans and IRAs. That means they must act in the best interests of their clients. These new rules have been met with fierce resistance from the financial industry, and some groups are calling on Trump to rescind them.
Regardless of the outcome, you can still act as a smart shopper and ask potential advisers or institutions if they’ll act in a fiduciary capacity for you. Ask how they’re paid and if their compensation results in financial conflicts of interest. Some firms, such as Merrill Lynch, are revising their compensation practices to eliminate these conflicts. Others, such as Financial Engines and Garrett Planning Network, don’t currently have conflicts of interests and will act as a fiduciary on your behalf.
The bottom line: To the extent possible, take savvy action steps so that your financial security and happiness don’t depend on the outcome of any election or other events that are beyond your control.