Here we go again with change coming in January, but the biggest change this year is going to come on January 20th when the administration changes. A lot of changes could take place in a lot of areas that impact you, and your retirement. That’s what we’re going to talk about in today. We’re going to talk about the changes, what might happen and how you can reinforce your situation and be prepared to take advantage of whatever happens if and when those changes take place.

So what changes could we see take place under the new administration?

#1 Lower Personal Taxes. The tax cuts and Jobs Act or the Trump tax cuts, however you want to define them from way back in the middle, 2015, 2016 or so when he first took office. Those are set to expire in 2026. He has said if he was elected, he wants to continue those. Now he’s gotten elected and he’s got a House of representatives with a thin margin and he’s got a senate behind him.

So chances are if they want to get together and decide to extend those tax cuts that might happen. So what does it mean for you? It’s a great time because taxes are low right now. If you ask 100 people in America, do you think taxes will be higher in the future or lower in the future? 99% of them say they think it’s going to be higher in the future because of our national debt. Our habit for wanting to spend our appetite for just wanting to buy everything and give everything. So if the tax cuts and Jobs Act extends, that’s great, but if they don’t in 2025, that is a great time for you to take advantage of what we know and what we know is in 2025, those tax rates are going to be at the lower rate.

Now, I want to make sure and point out one other thing. Those tax cuts benefit everyone. Everybody wants to talk about how they benefit the rich but let me show you something. The 10% rate will go back to 12% if it expires. Well, that’s really low income people. The 12%, that’s the middle class and lower middle class, the 12% will go back to 15% and the 22% will go back to 25%. You don’t have to be rich to be in those tax brackets. If they expire, they’re going to impact everyone. I don’t think they will. I think they will extend them. So here’s what you need to do. You can consider a Roth conversion, converting an IRA into a Roth means you never pay taxes on that money again. You’ll have to pay taxes on the money when you do the conversion, but the tax rates on it this next year are going to be low in 2025, so keep your ear to the ground and listen for any change in personal tax rates.

#2 Changes to Social Security. We’ve been afraid for years because they’ve been telling us for 17 years, that by 2033, unless Congress acts, the government might have to diminish what they’re paying out in social security to only 79% of the benefit. That’s still on the books. That’s still headed our way and it’s only eight years away from us come 2025. So what’s going to happen if they do diminish that? the new president coming in has said he wants to do away with tax on social security. That could be a good thing for you because you don’t have to pay taxes. As a single person, you start paying tax on Social security at $25,000 total, as a married couple at $32,000 total. So you might save some money on tax, but that might hit you in the other way in that it might hasten that 2033 date a little sooner if Social Security runs out of money sooner.

So change is likely to take place. Now, before the election, I was attending a very high powered, high thought impact event and they were talking about what might happen to Social Security and they were saying with Social Security, the best chance to get something done could only occur if whoever won the presidency also won both houses of Congress. Well that happened. Whether you like it on the left or like it on the right, it might give us a better chance of addressing that Social Security shortfall. Are we still going to be taxed potentially on our Social Security? That’s why you need to keep your ear to the ground. How can you respond to it? You can’t do anything about what Congress is going to do, but if you believe that there’s a possibility that your benefits from Social Security will be diminished by 21% down to 79% as they’re predicting then you need to plan for it now.

Here’s my question to you. What are you building in your plan and working with your financial advisor as to how you’re going to make up that 21% shortfall? You’ve got to look to annuities. You may look to maybe working a little bit longer. You may look to working at a part-time job in retirement. 43% of the people do that. Okay? And you also may, I’ve seen some people in our clientele recently, they’ve monetized their hobbies. In other words, there’s something they really love to do and it’s just them, and so they do it well enough and they make stuff with their hobbies and they’re able to sell it. But here’s the question and here’s what you need to keep your ear to the ground. As things change and as 2033 gets closer, how are you going to respond if they do diminish your benefits by 21% in 2033, how are you going to make up the difference? That’s a conversation you need to be having with a financial advisor or you need to be addressing it yourself.

#3 Healthcare Costs. Unfortunately, when we get to retirement, that’s usually when we spend more for healthcare than at any other time in our lives. Not always, but usually. So what’s going to change with that? Now, there’s D.O.G.E, Department of Government Efficiency and they’re going to go in and try to cut out the waste, the fraud, the abuse, the overspending that we’re doing in our government. That would be great. But when it comes to healthcare, how is that going to impact healthcare costs? Which by the way, healthcare costs have an inflation rate of almost twice of what normal things are, so if inflation rate is 3%, then healthcare inflation is usually around 6% every year.

Healthcare costs have just had a habit, have a history of just going up very, very rapidly. How are you going to address it right now if you’re on things like insulin? There are some subsidies that are set to expire next year in 2025, and if those expire in 2025, instead of paying a maximum of like $35 for insulin, it may go back to the way it was before those subsidies were there. Well, what if in a well-meaning effort to cut expenses and excess waste and stuff in the government, they do cut it and you’re left your own to cover that cost. How are you going to cover healthcare costs? There’s talk of adding to Medicare coverage for home healthcare, but it hasn’t happened yet. There’s also talk of adding to Medicare long-term care. What’s that going to do to the cost of Medicare? It’s going to drive it higher and higher and higher. How are they going to pay for it?

In this whole area of healthcare, you need to pay attention and you need to be listening to what might be taking place for changes. This is why if for no other reason, you should be in contact with your financial advisor or have a financial advisor who’s not just an investment person, but someone who is a retirement planner who will address all of these issues, particularly as we go into a new administration and a new year. Changes are coming to healthcare because certain things are expiring. What are those changes going to look like? You need to be ready, mobile, ready to move once those changes are made.

#4 Interest Rate Changes. Lower interest rates are likely coming. Now the Federal Reserve has started to drop the interest rates as perceived inflation gets under control. They want to drop them even more. They are high right now. This is a double-edged sword. Especially If you’re borrowing money for a house or refinancing. I talked to one of my clients just yesterday and he was talking about he’s got a home equity line of credit and he wanted to take some money out and pay it off because they have a variable flexing interest rate and its sky-high right now, so he wants to pay it off. The good news about interest rates being high is not if you’re borrowing, but if you’re loaning money. You say, I’m not loaning money, am I? Well, if you’ve got a money market in a bank, if you’ve got an interest-bearing checking account, if you’ve got a CD, if you’ve got an annuity, if you’ve got any of those things, you’re loaning money to those financial institutions so that they can use that money and make money. CD rates are really high right now. Money market rates are really high right now. So instead of complaining that interest rates are so high on credit cards (pay ’em off), get it paid off as soon as you can. If you’re loaning money to anyone in a CD way, make sure you’re getting the best interest rate possible.

If you’ve got an annuity, you need to review it right now because the rates are still high. You could go into a new annuity and your rates will be much better. Recently I took a client who over the past 10 years has averaged 2.09% in an annuity and I was able to put them into a new annuity that’s projected to average 10.79 over the next 10 years. I put them in a guaranteed fixed interest rate that was at 1.7 in their current annuity to a 3.55 – more than double, and I put them into an S&P 500 Standard & Poor 500 cap. Their cap was at 2.35 and we found a cap at 8.5. So that’s what I mean. There are better rates on the board out there and you need to be looking for them. There are higher payouts coming if you’re loaning money to banks or insurance companies right now, you need to talk to somebody.

#5 Lower Potential Corporate Tax Cuts. Now, the rates were changed way back about nine years ago from 35% to 21%. What did that do to the American economy? It spurred it. Yes, companies made more money, but they also hired more people, and they gave people raises and people had very fine and well producing jobs. Remember around 2008 or 2010 when so many people in their 50’s and early 50’s were getting laid off? You don’t hear that much about it anymore. If it’s happening to you. I’m very sorry. Call us. We help people and we have plans for helping people like that, but corporate layoffs are not hitting as many people in their 50’s and 60’s as they were 15 years ago, and one reason is the corporate tax rates were cut from 35% to 21%.

Guess what? The new president coming in wants to change it potentially to 15%. So yes, the richer are just going to get richer. But what do the people who own businesses and pay that corporate tax rate do? They hire people. They hire people like us and they bring them in and create more jobs and their better jobs. Here’s another thing they do. With lower taxes they’re able to put more people into their staff and they’re able to offer more benefits. They’re able to do things like offer more matching 401Ks. I know tons of companies who back in the middle 2015 to 2017 raised what they were matching on 401Ks. So again, change is potentially coming, so keep your ear to the ground. If you’re still working, that 401k might get a better match.

Another thing, if a company has to pay less of corporate tax, that’s going to make the stock prices go up because the companies are going to be more valuable, retain more money, and put the money back into the stockholders and those kinds of things. That means better retirement investments for you.

Hey, the bottom line is changes are coming. So it’s really important that you keep your ear to the ground. Stay listening. Pay attention. If you need our help in any of these areas, reach out to us.

You need to be able to make changes to your plan. As these changes come about  we can help you adjust your plan. Your advisor can help you do that, but be alert to what’s coming in the news because it’s going to make an impact on your retirement.

I promise you every week, if you’ll give me a few minutes, I’ll do my best to increase your financial knowledge and if we can help you with your retirement planning, particularly about a situation, a question, anything you’ve got, go to the website, get an appointment, give us a call. I’ll see you next time!