Every time the Presidency changes from Republican to Democrat or vice versa, the American public expects shifts in national fiduciary policy. That being said, we had a recent election, and President-Elect Donald Trump has now proposed many new policies, including adjustments to federal tax rates. He proposes, for example, eliminating the head-of-household exemption, which would impact single parents. Since we live in a period of flux, it's a good time to consider how to shift our financial planning goals, especially if our current investments aren't meeting our needs. Robert Schmansky's piece on Forbes.com sheds light on how the Trump administration might change retirement planning for the better, and we explore the gist of his article below:
In the current system, many of our retirement options are tied to our employer. For example, in the state of Florida, public school teachers must put 3 percent of their own pay in the state retirement system to match what the state puts in on their behalf as a retirement benefit. Their money, as well as their employers' share of their retirement money, is tied up. They don't have any control over how the state invests their 3 percent. If they don't get vested in 6 years or more in employment, although not continuous, they can never collect that money. In essence, they give their money away to a public retirement system unless they decide to stay long enough to derive the low-interest returns the state might make on their investment. There's really no flexibility in the plan, and they have no control. A new system under Trump might look different, perhaps not to save teachers' retirement options in Florida, but to benefit others.
What Might Happen to Financial Planning?
In his Forbes piece, Schmansky proposes one of the solutions, which constitutes government intervention in financial planning systems, to gel with Trump's proposed tax changes:
"Combine all IRA’s, 401(k)’s, 403(b)’s, SEP’s, SIMPLE’s, etc., into a new, privately-held account, with the link to employment severed. A potential name could be Unified Retirement Accounts or something similar. One standard contribution limit would complement a simpler tax code – perhaps $15,000 per individual limited only by income earned. Accounts could be opened at any provider. Tax-free Roth and pre-tax contributions would allow Americans options on what is best for their circumstances. Penalty and current access laws for IRA’s should be kept."
If the country moved to this type of system, it would work something like the Health Savings Account, which consumers can already get under the current system.
The proposed system would have many benefits for the financial planning world, as Schmansky points out, as well as for American consumers. Financial planners would have access to more consumers because the government would remove the link between the employer and the consumer's retirement savings account. Consumers would also derive advantages from various retirement and financial planners competing for their business, to include fee-only planners like us. This would be a more inclusive system appealing to consumers who currently do not use retirement savings plans, consumers who are unhappy with their plans, consumers who must follow lower contribution amounts, and consumers who do not meet the eligibility requirements for their current employer's plan.
We have more ideas on how hardworking consumers just like you can find more flexibility in how they invest their retirement savings. These ideas will work both in the current system and under new systems that could arise under President Trump and other leaders in the future. The fee-only financial planning community must adapt to economic shifts and continue to offer sound financial advice to people who want to live comfortably in retirement.
For more details on the benefits of fee-only financial planning, please contact us today.