How the election outcomes might have an effect on your retirement plan

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ALL NEW YORK DAILIES OUTMandatory Credit: Photo by Larry Marano / Shutterstock (10323445az) Joe Biden First Democratic Presidential Debate, Miami, USA – June 27, 2019.

If you are retired, approaching retirement age, or just want to plan ahead, your retirement plan may be the most important thing in thinking about what a Joe Biden presidency could mean for you. Some of Biden’s critics have argued that his presidency would be bad news for the stock market, which in turn would have a negative impact on retirement accounts. Supporters have pointed to Biden’s plan to offset tax benefits across income levels for those saving on 401 (k) retirement plans, which could benefit those on lower incomes. And others have found that Biden’s presidency doesn’t mean much to anyone’s retirement plans while the Senate retains its Republican majority.

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If you are unsure of what Biden’s presidency could mean for your retirement savings and what you should do to prepare for the various scenarios, you are not alone. To get some answers, I spoke to financial professionals to see what impact the choice could have on your retirement savings.

Last updated: December 10, 2020

401k piggy bank401k piggy bank

You may have access to a 401 (k) if you don’t now

If you feel like you are behind on retirement plans because you don’t have access to a 401 (k), a Biden presidency could be good news for you. Biden has proposed offering employees without a pension plan access to “401 (k) automatic plans” with their employer.

“The details of this proposal are vague, but employers may require their workers to automatically save a percentage of their salary into an IRA administered by a state or federal agency,” said Matthew Erskine, managing partner at Erskine & Erskine.

Roll of money for 401K with coins.Roll of money for 401K with coins.

You may have more of an incentive to contribute to a 401 (k) plan

Depending on your income level, Biden’s suggestion to change the way in which tax benefits are determined on 401 (k) contributions may benefit you.

“President-elect Biden has fundamentally changed the 401 (k) system, moving from a salary deferral and income-cutting model to your plan and instead moving to a credit-based system,” said Jamie Hopkins, director for Retirement research at Carson Group. “So instead of putting $ 10,000 in your 401 (k) and reducing your taxable income by $ 10,000, you would instead get a credit based on the amount deposited, such as 22%. So if you wagered $ 10,000 it would be a $ 2,200 credit, but your taxable income will remain the same. This would balance the tax advantages between lower and higher income savers. “

The story goes on

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elderly man using a calculator while checking his budgetelderly man using a calculator while checking his budget

If you are a high income earner, a 401 (k) plan may no longer be your best retirement plan

High earners may find that Biden’s suggestion is preventing them from contributing to a 401 (k). If this is the case for you, you may want to consider other retirement options.

“A flat tax credit is a tradeoff because high-income individuals could lose some of the benefits of investing in their 401 (k),” said Greg Brockmeier, financial advisor at Brockmeier Financial Services. “These investors may need to consider other ideas, such as Roth accounts or income deferral strategies.”

A stack of bank statements for retirementA stack of bank statements for retirement

Biden’s proposal could dramatically change our current 401 (k) system

Some financial experts believe that Biden’s proposal to offset 401 (k) tax breaks could derail our current 401 (k) system.

Jason Colin Patrick, principal of Fiduciary Advisors, LLC of Newport Beach, Calif., Said Biden’s proposal “has the potential to change the current pension system and effectively remove tax incentives for all American savers regardless of their income levels,” he said. “It also has the potential to discourage employers from contributing to employee retirement programs.”

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Building of the Congress Capital of the United StatesBuilding of the Congress Capital of the United States

However, there is a chance that this proposal will never become law

Before you begin reassessing your 401 (k) entries, see how the remaining races in the Senate will play out.

“Tax law changes cannot be approved with an implementing regulation. They have to be passed by law, which means they need congressional approval, ”said Chad Parks, founder and CEO of Ubiquity Retirement + Savings. “If Republicans gain control of the Senate, these proposals may be less likely to become law. However, if the Democratic Party gains control of the Senate, these changes could come to fruition. “

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Elderly woman relaxing on wheelchair in backyard with daughter.Elderly woman relaxing on wheelchair in backyard with daughter.

If you’re a caregiver, you may have some catch-up contributions to make towards your retirement savings

If you’re one of the millions of Americans who left the workforce to become caregivers, your retirement accounts could get a boost under the Biden presidency.

“In addition to a $ 5,000 tax credit for family carers, Biden has proposed that any caregiver who has been on the workforce for a year or more should be given the opportunity to add additional contributions to their retirement accounts – that is, to expand their catch-up contributions That usually happens at the age of 50, ”said Jeff Schneble, CEO of 401 (k) provider Human Interest. “Today, 28% of nurses say they stop saving because of nursing. The adjustments Biden is proposing for the caregivers could help many of them to be on the right track to save and ensure their financial security for the future. “

Social security card.Social security card.

Your social security income may be higher

The new administration in Biden is proposing major social security reforms “that would radically change the composition of benefits for low-income retirees,” said Liam Hunt, financial writer at GoldIRAGuide.org.

“Under Biden’s new regime, all seniors will receive additional social security benefits of $ 6,500 per year to offset the rising cost of living,” he said. “The program is designed to provide disproportionate support to low-income people, as benefits are only available to those who have collected social security checks for at least 20 years and low-income retirees generally start collecting social security well before wealthier retirees.”

Detail of an elderly couple reviewing their financial investments.  Http: // 195.Detail of an elderly couple reviewing their financial investments. Http: // 195.

You may have to face inflation if Biden fails to curb the national debt

If you are currently retired or planning to retire soon, keep an eye on how Biden is handling the national debt.

“Our national debt requires the president’s serious attention,” said Chris Manske, author of The Prepared Investor. “Two basic steps to reduce public debt would be to increase tax revenue and reduce government spending. The road to more taxes and fewer benefits is a difficult one, and if Biden can’t help us get there, we’ll be so much closer to big inflation as the Fed has to print money to cover rising interest payments. Inflation is a serious enemy of retirement planning because their dollars can’t buy what they expect. “

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You may want to increase your equity exposure

In anticipation of inflation, increase your equity exposure, said Brian Walsh Jr., senior financial advisor at Walsh & Nicholson Financial Group.

“It can make sense to increase equity exposure in the short to medium term, as Biden will most likely provide a lot more stimulus, which would be positive for the equity markets,” he said. “Retirees need to benefit from stock gains in the short term in order to combat rising inflation in the long term against increased debt in the system.”

Financial data analysis chart showing market trends over $ 100 on a digital display.Financial data analysis chart showing market trends over $ 100 on a digital display.

If market performance is your primary concern, a Biden presidency is unlikely to have any impact on your retirement portfolio

Barbara A. Friedberg, financial expert and owner of Robo-Advisor Pros, said the stock market has historically done well under both Democratic and Republican presidents. With that in mind, you don’t have to make drastic changes to your retirement portfolio depending on who the president is.

“My advice applies regardless of who is in office,” she said. “Make sure your portfolio asset allocation is in line with your risk tolerance and time to retirement. If you need to draw on your retirement funds within the next five years, you need to invest a larger percentage in bonds and cash. If you have more than five years to retire, you can be a little more aggressive as stocks and equity funds get a higher percentage. “

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Gabrielle Olya contributed to coverage for this article.

This article originally appeared on GOBankingRates.com: How Election Results Could Affect Your Retirement Plan

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