Excel in Retirement
Excel in Retirement
How will the Election Results impact your Retirement? Ep 130
Hear some of our clients top questions on how the election results will impact their financial portfolios, what to look out for, and ways you can help insulate yourself for a successful retirement.
Welcome back to the Excel in Retirement podcast, where we help good people make wise financial decisions so that they may excel in retirement with confidence. Learn more at clientsexcel.com. Now to your host, David Treese.
UNKNOWN:David Treese.
SPEAKER_00:Welcome back to episode 130. I am joined with Felicia Page and we are going to be talking through some stuff. What are we talking about, Felicia?
SPEAKER_02:All right. So obviously we just had a pretty monumental election here. And so that's what we're going to be talking about is the election and basically how that's going to be impacting the financial industry in general. And especially for all of our clients, we definitely focus on retirees and there's several big key points that we really want to bring to their attention.
SPEAKER_00:Okay, great. What are we going to talk about?
SPEAKER_02:Well, so we're going to first talk about basically what are some of the major questions that a lot of our clients are looking at. We're going to talk about the Tax Cuts and Jobs Act. That's potentially up on the chopping block for next year. Some retirement savings, social security, government spending, and I think you also mentioned some tariffs as well. And we're going to talk about maybe a few different solutions that we can be looking at to help protect our clients' money like Roth conversions.
SPEAKER_00:Okay, cool.
SPEAKER_02:So let's jump into it. First and foremost, we've got Trump's Tax Cuts and Jobs Act, which obviously was originated in 2017. So tell us a little bit more about that, kind of where it's at, what it's kind of meant for our clients, and what the potential outlook looks like.
SPEAKER_00:Yeah, we saw some major legislative happenings when it comes to retirement accounts with the 2017 Tax Cuts and Jobs Act and then the Secure And so what happened, and we talked about this a good bit over the last few years, is those tax cuts were enacted in 2018. And so in order to get that through Congress, they negotiated a sunset of that. And so at the end of 2025, legislatively right now, the Tax Cuts and Jobs Act is set to expire. And so what that means for most people is that if you pay taxes, our taxes are going to go up a little bit because we saw the standard deduction go up pretty high. And then we saw the the thresholds decrease. And so that is set to, if nothing happens to sunset at the end of 2025, and then in 2026, we will go back to those old tax brackets. And so Trump has talked in his campaigning about extending the Trump tax cuts. And it's my understanding that when We enacted the tax cuts that sent the deficit up over a trillion dollars a year at that point. And so I don't know if it's going to be possible. I don't think anyone knows if it's going to be possible from a mathematical standpoint to extend the tax cuts and jobs act. I'm sure the government tends, in my opinion, to get pretty creative with their accounting. And so they probably could get something figured out. But at the end of the day, we're still, what is it, 37 I've got a nifty little app on my phone showing the national debt in real time, and it's about$36 trillion. We're going on$36 trillion. We're at$35.9 right now. And so at some point, we have to figure out what to do about our debt, and that is a challenge. As more and more baby boomers are retiring, there's not enough workers coming into the workforce to pay taxes since the generation behind them is not as large.
SPEAKER_02:Certainly. And that's something that we were going to kind of talk about as well is basically the government spending. So that's another point, just since we're kind of segueing into that. Essentially, you know, what are the thoughts with Trump being in office on the overall government spending and how that's going to affect everyone? I
SPEAKER_00:mean, the thing I'm most excited about is Elon Musk and Vivek coming out with the Department of Efficiency or however they're saying it. And musk seems to think that they can cut the budget by two trillion dollars which that would be incredible to see that happen and so you know it's pretty wild all the things that trump is already saying and the swift pace at which he's moving with uh i think i saw that he's talking about doing away with the department of education and sending that back to the states and there's just a list that goes on and on what trump did in his first term is deregulate quite a bit. And that's what Elon's mandate is for this new department or temporary department that he's overseeing is to deregulate, which tends to make it easier for businesses to operate because there's less compliance needs there and less regulatory pressure that takes away from productivity. And so the economy is probably going to grow, Lord willing, and that will be a great thing. And Trump figures that we can do that. This is me, my My reading into what he's saying or explaining what I think he is saying is that we can afford to do the Tax Cuts and Jobs Act and extend it because he's going to deregulate, which is going to mean more money is coming into the government coffers because there's going to be more money earned and more tax revenue. And so that is his ambition, I do believe.
SPEAKER_02:excellent yeah that's essentially I've got a couple of notes here from a recent webinar that we've looked at and essentially what they're saying is Americans are essentially underpaying for the current government that we currently have some statistics that they were reflecting were that our country brought in 4.4 trillion dollars in revenue and spent that exact equal amount just on mandatory non-congressional spending alone
SPEAKER_00:yes
SPEAKER_02:so again
SPEAKER_00:kind
SPEAKER_02:of lending to programs like social security and medicare
SPEAKER_00:Yeah, and we would be happy to send you the notes we're looking off and what Felicia is referencing there. If you just want to email us at hello at clientsexcel.com, we would certainly be happy to email over the report she is referencing.
SPEAKER_02:Yeah, but so again, kind of talking about Social Security, I think that's another big thing. You know, retirement and Social Security is something big that we're dealing with often here in our office. So can you speak a little bit on that in terms of what the new legislation maybe looking at in terms of these two different areas?
SPEAKER_00:Yeah, it's pretty crazy that we pay taxes on our social security to pay into it and then we get taxed again when we take it out. It almost seems like double taxation, but I am not an expert on that. So it was a Republican in that Ronald Reagan in the early 80s with Tip O'Neill, the Democrat, got together and started taxing social security. And I believe, if I recall correctly, that was enacted into law around 19 And we started taxing retiree social security payments. And the thought process was to try to make it solvent, the trust fund solvent for all of us coming behind them. And so now President Trump has said that he would like to quit taxing Social Security. The challenge we have is in 2034, the trust fund put out a report or ssa.gov. You can go read it there. I believe that by 2034, they will not be able to pay full benefits at the current level of money that they're bringing in. And so I believe it was either 78 or 79 cents for every scheduled dollar in 2034. And so we've got, we're on a train, so to speak, and we're on a train that's sort of out of control, in my opinion. And there's the tracks just drop off here at the end of the track. There's no continuing on with where it was at. So obviously now is the time to be figuring out how to shore up the Social Security Trust Fund. And what we're projecting is in this report that we're referencing, there's about 51 billion in revenue that's generated from social security and so where are we going to get that money from to make the program keep going i don't know i hope we can do it that would be a huge quality of life enhancement i feel like for our clients if that was not taxed but again i think it just comes down to a math problem and and i would love to have some transparency around how we're going to do that
SPEAKER_02:For sure. I can't believe that we're this close to this 2034 deadline that we're looking at, and it literally hasn't even been a topic of discussion. So, interesting. One of those other kind of areas or questions that they've been looking at is retirement savings and the taxation of that, especially for those who are potentially wealthier Americans. So, obviously, with Trump, I imagine his... perspective on that is certainly to not do that. But what are your thoughts there?
SPEAKER_00:Well, I think it's inherently un-American to demonize success. And there has been a movement in our country for some time now to penalize people or want to penalize people that have been successful. And I personally feel like that's repugnant. And so there's been this vague language about taxing people more that have been able to save for retirement and so forth. And you hear things that Occasionally floated in the news about means testing, whether people get social security or not. And I wish we would spend more in our educational endeavors to educate Americans about the opportunities we have in our country to do better. And other countries do not have as many opportunities as we have, but there are so many examples of people being able to better themselves with a side hustle or starting a business like we have done here. here to serve other people and how you get rewarded for that. And it is challenging when the government demonizes success and pits people against each other ultimately. And so I hope if Trump does nothing else, he is able to roll some of that hostility and mentality away from government, roll that back and not have that as a thing because that is certainly no way to get producers to continue producing.
SPEAKER_02:Absolutely. It's kind of that American dream that certainly has been the foundation for us here. Well, there's one other topic that we want to talk about before we kind of dive into some solutions and things to look at, and that would be the tariffs that Trump has proposed. How do you think that is going to really affect all of our individuals in the finance industry?
SPEAKER_00:Well, I have to say I'm not an economist. Right. It seems like Trump was into entertaining the idea, it seems like I've heard this since the election, of entertaining the idea of doing away with income taxes and just using tariffs. And again, I don't think that mathematically could work. You know, we did not see high inflation until Trump left office and we had tariffs happening then. I think that it's inherently unfair the way other countries take advantage of us. This is my opinion. And we pay unequally weighted amounts to things like NATO and various organizations like that for other countries. And so Yeah, absolutely. thing for our economy and giving people the ability and the opportunities to have jobs and to better themselves. What that does for inflation, I don't know. It could go up. And that's the million dollar question, right? And then what happens with interest rates? Trump put a lot of pressure on the Fed to lower rates in his first term, and he probably will again, if I had to guess. And so if inflation goes up, it's going to be very hard for the Fed to lower rates, I believe. But that is something we'll just have to wait and see. wait and see I feel like
SPEAKER_02:it's definitely going to be a lot of wait and see but certainly these are just kind of some big topics that have been something we've been hearing a lot of so ultimately you know Trump is going to only be in office for another four years we know this right so ultimately a lot of our clients are looking at you know a trajectory or a vision way past four years yes and so you know what are some different things how are some how can our clients kind of insulate themselves to be able to maneuver across all of these different potential legislative changes or maybe they're good for a little while longer and maybe they're not. But what are some things that they can do to kind of help insulate themselves?
SPEAKER_00:Yeah, we've had two really good years. This year and last year have been really good in the market. But at the end of the day, when we are in retirement, we want to have an all weatherproof financial plan. And so we want to be able to prosper in the good times and be less impacted in comparison to the overall stock market when the bad times happen. So what I really mean is we want to switch from an accumulation stance to an income and distribution. If we are trying to hit home runs when we're 30, 40 years old in our accounts, we have to be okay with striking out occasionally too. And striking out in our retirement accounts means maybe losing 25 or 30 percent of our money. And we have the benefit when we're younger of a long time horizon to make up those losses. But when we get to a point where we could possibly start distributions out of our accounts or we don't have as long of a lifespan to potentially make up for big market problems, we want to transition to trying to hit base hits. It's a lot easier to hit a base hit and get on base and circle the bases than it is to hit a home run. And so what that looks like is perhaps taking a little less risk with our accounts and so forth. Occasionally we meet people and They love the way their accounts have been growing and it's very difficult for them to switch to an income and distribution stance. But at the end of the day, Once we do some math and we figure out what you're trying to achieve with your accounts and the type of income level that you want, we kind of get to a point where we've made it. We've hit our success and we don't need to keep pushing the envelope to have more success and take more risk. It becomes somewhat unnecessary. And so we know we need money in the market throughout our lifetime to protect our purchasing power because the market is the best hedge against inflation for most people. And so we need to It's the most accessible hedge against inflation because the market tends to keep up with inflation and exceed it. And so what we want to do is create an all weatherproof plan. And we don't know. You know, Trump's first term, we had COVID and things were volatile and the market went down over 30 percent at one point. And so the market very well, for all I know, could go down 40 percent in the next year or two. It could prosper. It looks like things are going to go well, but we don't know. And so the point is is we want to transition to an all weatherproof plan so that we can have the best likelihood of you being able to maintain your standard of living in retirement
SPEAKER_02:Absolutely. And that's basically, I mean, the core of what we do as a business in general, right? Even when things
SPEAKER_00:are good, we still were saying the same thing to everybody we sat down here at the table. playbook for how we help folks. And we would be happy to get a copy in the UPS to you. You can just email us at hello at clients, excel.com.
SPEAKER_02:Fantastic. And just one final note. Um, I know we talked a lot about taxes today. Um, that's been something kind of a lot of people are concerned about. And certainly, you know, like I was saying with us underpaying for the government that we currently have, we basically have this kind of impending, uh, potential rise for taxes in the near future. And so a buzzword that we've kind of been hearing a lot of is Roth conversions. Can you talk a little bit about that and what benefits that might have?
SPEAKER_00:Yeah. So if we're over the age of 59 and a half, we can begin distributions out of our qualified retirement accounts, like our 401ks and IRAs. And so if we have an IRA, a traditional IRA that's never been taxed, the government will allow us to pay taxes before we have to. So Uncle Sam always has his hand out and he's ready to receive taxes if we want to prepay or pay before it's necessary. What we've been doing for years now is taking money out of our tax-deferred accounts and putting some of it in a tax-free account. And so the reason we might do that is if taxes go up. But I believe if taxes stay just as they are right now, that we would be benefited by going ahead and paying some of the taxes now so that we can get it to a tax-free position. And that doesn't have to be everything. Every dollar we hold in qualified accounts is ultimately whatever you're comfortable with. But I think most people would be benefited by doing this. And so there's obviously a lot of nuance to this. And we want to work closely with a tax preparer to make sure we're making good decisions and not having any secondary effects to our decisions as far as unintended consequences. But I think that it is beneficial to have tax-free money because our government has not been a good keeper of our fiscal house. And so we have some software where we can analyze the tax return and figure out where you are with your effective rate and so forth and figure out how much room you have in your current tax bracket. And so this is often easier for folks as they're transitioning into retirement and maybe their work income is going away. But if that's many years out for you and you love working, I would not put off that just because we're still working. It's still a conversation worth having. And at the end of the day, with that qualified account, either you or your spouse or whoever inherits your funds is going to pay taxes on it. And so at what point are you okay with the taxes being due? Do you want to defer that to your children for them to figure out? Some people are fine with that and they figure that that's a blessing to their kids and they can deal with that problem or Or would you like to empower them where they get a tax-free inheritance and your money that you worked so hard for could potentially be extended and they could keep more of it in their pocket? I personally would love to see that happen for my children, and so that's what we help folks do. That is how that works, typically, in a nutshell. Does that answer your question, Felicia? It
SPEAKER_02:does, absolutely. And again, just to reiterate that it is a case-by-case basis, right, with these Roth conversions. We really need to analyze the full picture here.
SPEAKER_00:There's nuance to it, and that's not appropriate for everybody. Absolutely.
SPEAKER_02:Good deal. Well, any other final notes on the election and what the potential forecast looks like?
SPEAKER_00:I think the biggest takeaway is that the news and all the pollsters really got it wrong, and And we were told that this was going to be a super tight election, and it really wasn't. And so it just makes you wonder what we can believe, quite frankly.
SPEAKER_02:Yeah, didn't they say Trump won the popular vote?
SPEAKER_00:Yes, first time in, what was it, 20 years? I think so. Yeah, Republicans won. Yep, that's cool. Thank you, Felicia.
SPEAKER_02:Yeah, absolutely. Thank you guys so much.
SPEAKER_01:Investment advisory services offered through Creative One Wealth, LLC, Clients Excel, LLC, and Creative One Wealth are not affiliated companies. Licensed insurance professionals. Investing involves risk, including potential loss of principal. Any references to protection or lifetime income generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims-paying abilities of the insuring carrier. Annuity withdrawals are subject to ordinary income taxes and potentially a 10% IRS penalty before age 59 and a half. Roth distributions are tax-free after age 59 and a half, and the account has been open for at least five years. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual's situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by clients Excel. The use of logos and or trademarks of hosting sites are the property of their respective owners and are not an endorsement by those owners of our firm or our program.