Tax season may – finally! – be behind us, but taxes are still very much on the minds of our listeners, and my clients at Keen Wealth. President Trump recently unveiled a new tax plan, the consequences of which are still being unpacked and analyzed. And changing taxes is just one part of the broader Trump economic plan that the president and Congress are trying to convert from campaign promises into actual legislation.
On today’s show, we open the listener mailbag to answer some common questions about the Trump economic plan, and how it could affect your finances. We also take a look at life insurance for retirees, and revisit the crucial distinction between a fiduciary advisor and a broker.
Listen to the Episode
Simply “click” or “tap” on the “play” icon in the image below to listen to the episode. If you’d like to subscribe to the podcast using an Apple product (iPhone, iPad, iPod touch) click here to learn how. If you use an Android phone, we recommend using the Podcast Addict App, which can be downloaded here.
Insights from Today’s Podcast on Listener Questions and the Trump Economic Plan
Here are the big points on preparing your money, and your retirement, for the Trump economic plan:
1. Taxing 401(k)s and IRAs.
Recently, the White House National Economic Council discussed removing pretax benefits from retirement accounts, including 401(k)s, and shifting them to after tax benefits. Doing so would generate approximately $1.5 trillion in tax revenue over the next decade. Accessing that big pot of untaxed money is also the rationale for proposals on taxing the Roth IRA, which we covered in a previous blog. How exactly this would work is uncertain. There’s been talk of taxing retirement account contributions when they’re deposited, like Roth IRA contributions, there’s been talk of taxing withdrawals later – the Trump economic plan still has a lot of options on the table.
So the question is: should you keep investing in these retirement accounts?
In our opinion, the answer is yes. The Economic Policy Institute just released some very sobering statistics on retirement savings in America. For families in which the primary earner is age 30 to 61, the median retirement savings is only $5,000. Americans, as a whole, just are not saving enough for retirement, which is one reason we’re still skeptical the Trump economic plan will make it harder to save for retirement, especially as pensions for new workers continue to vanish.
For those of you that are still working, make sure you discuss your financial plan with your advisor so you’re ready to adjust your investment strategy if necessary. But whatever your plan is for making contributions to a retirement account, I hope you’ll take this advice: set up automatic deductions from your paycheck so that money gets saved every month. As I’ve said before, there’s no easy answer to the question, “How much money do I need to retire?” But it’s definitely more than $5,000.
2. Less tax brackets, with less tax deductions.
The Trump economic plan aims to simplify the tax code into three brackets: 10% for low earners; 25% for the middle; and 35% at the high end, with a doubling of the standard deduction across the board.
The price tag for simplicity is that the Trump economic plan would also eliminate most other deductions, except mortgage interest, and charitable giving.
On the business side, Trump’s proposals are mostly the same as they were on the campaign trail: lower the corporate tax rate; lower the tax rate for overseas earnings; and close loopholes for special interests.
According to the Trump economic plan, all of the above will kick our economy into overdrive, create new jobs, and lead to a wave of new small business owners. And maybe it will. But as we discussed recently, the broad economic picture in the US is already very positive. That doesn’t mean there aren’t a lot of folks struggling, and a lot of folks who have had their jobs disrupted by technology. But in the long run, the economy has a habit of correcting itself, usually for the better. Trump and his policy team will have to weigh the potential downsides of his plan – particularly a potential big increase in the federal deficit – versus the potential benefits of putting more money in people’s pockets.
3. Insurance is for the young.
A lot of our clients at Keen Wealth realize as they near retirement that their company life insurance will end once they retire. Others have old policies outstanding and wonder if they need to extend or supplement those policies.
Life insurance policies, generally, benefit young people who have just entered the workforce, have young children and mortgages on homes and have only just begun to save their money. If you are a retiree with a good financial plan in place, and you’ve done a good job of saving for retirement, then you may be able to cross paying monthly life insurance premiums off your budget. This is assuming you have enough assets set aside to take care of your family in the event of your passing. This can be confirmed by evaluating these issues in the context of your overall financial plan.
4. Ask a fiduciary.
The Trump economic plan raises a lot of questions. You want the most qualified people you can find giving you answers, which is why you want to make sure your advisor operates to the fiduciary standard. This is the standard we adhere to at Keen Wealth, because unlike the lower standards that apply to stock brokers and insurance agents, fiduciary advisors are required to put clients’ interests first. Not sure if your advisor is a fiduciary? Just ask. If he or she isn’t, ask why not.
Know the Facts
At Keen Wealth Advisors, it’s always about being conscious of the facts and helping people make educated decisions. You cannot wing this stuff. You’ve got to get down, look at the numbers and evaluate everything. I always recommend that investors get with a good, solid fiduciary advisor whom you trust, whom you know, whom you respect. You want an advisor who’s walking the walk themselves, who can advise you on these things, and who can see around corners that you can’t see around.
Getting your financial situation in order can be tricky. With all kinds of complicated government rules and regulations, one bad decision could cost you tens of thousands of dollars. We get people referred to us all the time who have missed things that a good financial advisor could have addressed proactively. Let us know if you have any questions.
Bill Keen on the Trump Economic Plan …
“A fiduciary advisor is a great resource to help you sort through how changes to economic policy might affect your finances.”
Please share this page and the podcast with your friends and colleagues via Linkedin, Twitter and Facebook. You can use the share buttons. Thanks!
Got a question or comment? Email it to me and we’ll get back to you or call our office at (913) 624-1841.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.