It’s been two weeks since the US Election and were guessing many people are nervous about what the next four years could look like under President Elect Donald Trump.
To be honest, I have no clue what the next four years have in store. That said, we can make some educated guesses based on previous Republican administrations and what President Elect Donald Trump has said during his campaign.
Below are some financial areas that could see changes in the next few years.
It has been widely reported that one of the first moves President Elect Trump will make in office will be a plan to overhaul taxes. In fact, according to the Wall Street Journal, this could be one of the biggest changes to the American tax system since 1986.
If the plan goes as House Republicans have proposed, some households could be paying lower taxes for years to come. According to published reports, individual income tax brackets could be reduced to just three: 12%, 25%, and 33%. This would be a large change from our current system of seven brackets with a top rate of 39.6%.
The capital gains tax rate—the tax rate you pay when you sell capital gains assets that have been held over a year such as stocks, bonds, and real estate—could be dropped to 16.5% from a current top bracket of 23.8%.
The other big changes could be an increase in the standard deduction and changes to itemized deductions. The idea of President-Elect Trump and House Republicans is to simplify the tax code.
Estate tax is one of the most misunderstood concepts I come across. Estate tax does not affect 99.9% of all Americans. In fact, most Americans do not pay estate tax. This is because, for a married couple, each spouse gets a $5,450,000 exemption. That means each family gets a total exemption of $10,900,000.
Therefore, if you are married and your estate is less than $10.9 million your beneficiaries will pay no estate tax when you pass. If your estate is over $10.9 million, the current tax rate is 40%. Trump plans to cut the estate tax rate to 0%.
People love to worry about the stock market. They believe that an investment strategy should change based on who is running the country. As we have previously shown, that is not true.
We are pretty confident that the stock market will drop during Trump’s Presidency, we are also confident it will rise during his time in office. During Bush’s Presidency, the stock market dropped, then went up, then crashed. During Obama’s it was crashing then went up, crashed again and continued to go up. No one correctly predicted either pattern; no one will correctly predict the stock market pattern with Trump in office.
To me, it does not matter who the President is: the stock market does a tremendous job of rewarding patient long-term investors. It’s important to remember that those long-term investors stick with the ups and the downs of the market. I am a long-term investor; I will stick with the stock market.
Healthcare is a very sensitive subject in this country, some people love the Affordable Care Act, others hate it. I would expect some changes to healthcare and Medicare as Trump has said repealing the ACA is one of his top priories. The Wall Street Journal, has reported that Republicans want to make changes to Medicare. At this time, there hasn’t been enough reported about the plans to give an opinion on what is going to happen.
What does this mean for my financial plan?
You’re going to hate this answer, but it depends. Every person has a different situation, and no two people are alike. That is why you cannot use the internet, TV or radio to get random financial information. You need tailored planning that is unique to you and your circumstances.
As financial planners, we will be staying on top of all the changes for our clients and we will send updates and conduct personal reviews as needed.
In the meantime, if you would like to get together to review your financial plan or start the financial planning process we are here to help.