Election 2024 Update: How It Could Impact Your Retirement

And we are privileged to be joined by a very special guest. You've heard her on the program here before, Washington insider Becky Swansburg of Stonewood Financial, always giving us insights into the political world.

A former, I'll say, reformed Capitol Hillist, Becky. That's right. I don't know. They say once you're in the swamp, you always carry some of that swamp with you. And you do. You stay in touch and informed with what you're doing. What is going on? So here we are still pre-election, but leading up and ramping into this voting and election season.

Bring us up to speed. What are you seeing, hearing? Has anything major really even shifted with how this election and how this election season has transpired?

Yeah. So what will be interesting is, of course, what's sexy, what's exciting, the presidential election, all eyes on who will be in the White House. But I like to remind people that while the president certainly sets policy, the president does not pass law. That is the House and the Senate. So we have this unique thing where we're trying to figure out not just who's in the White House, but who has control of the House and Senate.

What kind of majority do they have and what does that mean for the president actually being able to pass whatever legislation he or she would like to get through? So what is interesting right now is unless there's kind of this something going on under the surface that the polls aren't catching, it does definitely look like we'll have divided government and very closely divided government. And why I think that's kind of important for Americans to understand is, one, it makes it harder for the president to pass policies through the legislature. But as we've seen in recent years, a lot of presidents are turning to executive orders and, you know, regulatory administration regulations like I was going to ask if that changes the comment on passing laws. And it does seem to be a very, at least in my recollection of lifetime, have ramped up significantly over the past several presidential terms.

I think that is absolutely right. And so unless the Supreme Court really comes and starts batting these things down, I think whoever ends up in the White House is going to struggle to get their initiatives through Congress. And we're going to have to watch very closely what's happening through regulation and executive order. Now, Becky, on the last time that you were on the program, you provided some insight in saying that, of course, all elections are important, but it's not just this election. And I think for retirees, this really resonates.

Retirement is 25, 30, 35 years. So it is not just this election. It is the several election cycles that will happen over the coming decades that are really going to be important. And that direction, the country seems to be from a financial and a tax standpoint, not only not veering much, but accelerating the paces that we've seen.

Yeah, so two points on that. The first is that, you know, a lot of times we think what's kind of driving what I call this legislative risk, this risk that changes coming from Washington impact your retirement approach or your savings approach negatively. We think about what's driving this is like, oh, what's going to happen in this election? Who's going to be in the White House?

Who's going to control Congress? But the thing that actually drives legislative risk in retirement is the fact that we have a two year election cycle. So that means every two years in America, we have new government. So whatever the environment is today, it could change two years from now. And that's why I think always with elections, it's important to look at what kind of legislation might come out of this administration. But the biggest thing we have to keep our eye on is long term. What do these policies mean for the country's economic situation, debt situation, and then, of course, tax situation to handle that debt?

And we know those are heavily intertwined. And speaking of two years in just two years, the current tax rates and brackets do expire. The twenty seventeen Tax Cuts and Jobs Act was an eight year measure.

So twenty twenty six January one is when those are set to expire. And you mentioned the likelihood of a mixed government, the House, the Senate, whoever holds the president, the presidential office, red, blue. It doesn't look like it's going to be the same across the board and want to emphasize the point that in order for those tax cuts and jobs act laws and brackets not to expire in order for taxes not to revert and increase. There has to be new tax legislation that passes all three of those bodies.

That's right. So it's interesting that Trump has obviously said that he would like to extend those tax cuts for all Americans at all income levels. Harris has said that she would like to extend it only for lower and middle class Americans. Of course, either president has to get that policy through Congress.

So do I think they might come to some kind of agreement for some portion of America? Yes, but I think most of us need to start planning as though our tax bracket rates are reverting to their older higher rates come twenty twenty six. Now, on one hand, that's depressing because I hate paying more taxes. You hate paying more taxes.

Our listeners hate paying more taxes. But it does mean that we have this urgent shrinking opportunity to do some tax planning. If we're thinking about converting the tax status of any of our retirement assets, we can actually do so this year and next year at a discount. But we only have two years to get that done. So if any of the listeners has been considering kind of changing into something tax free for a portion of their assets, the time is now.

Yeah. And the 12 percent going to the 15 percent bracket, that is not a three percent tax increase. That is a twenty five percent higher bill on the dollars that fall into that bracket.

And then, of course, other brackets progressively change up the scale to twenty two becomes twenty five, twenty four becomes twenty eight for a married couple. Their first two hundred thousand dollars of income on on on that amount, about an 18 percent higher tax bill. And so may want to look at realizing and optimizing and managing that tax bill now while we have this two year opportunity.

Becky. Yeah, I will say right now, you know, when you think about savers, they are used to diversification. Most of us have portfolios, their retirement accounts that are diversified when it comes to the market. You know, we have some in stocks and equities and some in fixed income, and we want to make sure that we're protected if the market goes down. When it comes to taxes, though, so many savers have all of the majority of their funds in these tax deferred vehicles.

The massively popular IRAs and 401ks have them myself. But I think what we're coming to realize is we made this big bet while we were saving that taxes would be lower in the future than they are today. That's why we deferred all of these taxes. And there's a real risk now that that might not be true for many savers, particularly savers that have done a good job saving for retirement. And so what we really need to do is bring the same concept of diversification to the taxes. Taxes are kind of, I think, the final frontier of retirement planning for many savers. And we just need to make sure that we have some hedge within our retirement approach against this risk of rising taxes, because most of us think about taxes going up or down for personal reasons. You know, do I need more or less income?

Where are my brackets going to be? But Washington can change the rules any time. And we need to be aware that Washington has a lot of deep pressures on them to raise taxes, particularly on higher income individuals. And that could impact us and how much money we get to keep in retirement and how much goes to the IRS. Now, that's not to say that saving in those 401ks and IRAs has been a mistake. By and large, taxes have come down over the course of the career, decades of the baby boomers and the currently retiring working person's career, right?

In the 1980s, taxes were significantly higher than they are today. It's just that now is kind of a change in paradigm and a shift in the likely direction of future taxes. And I've given my wife this analogy that when I go into a department store, if there are two racks with the same item on them, but one is marked 25 percent off, I'm probably going to buy that item off of the 25 percent off rack.

However, I'm a pretty frugal shopper and my wife makes fun of me that I'll go around a department store and pick things up and then decide, I don't really need that and put them back regardless. But taxes are a compulsory purchase. We are going to have to pay them now or pay them later. So why not pay them when they're marked down and discounted, right? That is taxes are on sale right now.

So if you pay them off now, you're going to pay less than you would if you let them go forward. And, you know, here's why I think we can expect from that. We, just like you said, have entered kind of this era of rising taxes. If you look at the revenue that our government takes in versus the revenue that it spends, the problem is not actually political. It's not actually whether Republicans or Democrats are in the White House at its core.

The problem has become demographic and mathematic. We take in about four point four trillion dollars of revenue as a country. Over half of that comes from individual income taxes. That's primarily what funds our government. In the last fiscal year, our government spent four point four trillion. All of the money it took in, it spent on mandatory spending, things like Social Security, Medicare, Medicaid, servicing our national debt. So we are using up right now almost all of our revenue on these mandatory programs, which means anything Congress passes, which, by the way, includes defense spending, roads, transportations, bridges.

All of that is deficit spending. And because we can't control the demographics of our nation, we have more Americans age 65 plus than at any time in the last hundred years because we can't slow down the people that need Medicare and Social Security. We have to raise more revenue and most of that revenue is coming from income tax. And that is where I think we need to expect that we are entering into this rising tax environment. I can't promise it'll be just on income tax, but I can say overall, our tax burdens as successful savers are going to be higher in the future than they are today. Now, Becky, do you feel that that potentially shifts here as the demographics also show that we've reached that bell curve peak of the baby boomers? And so now, rather than contributing and deferring and delaying paying taxes, not only is the younger generation, it seems, going ahead and preemptively voluntarily prepaying taxes and using the Roth option for their retirement savings, paying income tax on their income, saving in a way where income tax is collected as they go. But the baby boom generation and those in retirement are also now beginning to reverse course making taxable withdrawals. Does that have any impact on the fact that all of our money is spent before Congress even sits down and whispers about spending any additional money?

You know, I think what it says is like Americans are getting a little tired of dodging bullets coming out of Washington. It's like every time Congress meets, we're like, oh, I hope you don't pass any legislation that could negatively impact my savings, my retirement, my tax status. And that Roth being able to convert into some of the things that are tax free, it just buys out the government from that portion of your retirement.

And I think what people want to do is they're saying, I don't want to dodge these bullets when Congress meets. I want to kind of get this money out of the line of fire. I want to make sure that no matter what happens in Washington, if Trump wins, if Harris wins, if we have the wildest elections this nation has ever seen for the next two decades straight, I got a portion of my retirement assets that aren't going to be impacted. Financial confidence is about as eliminating as many variables so that you've got a known outcome and as beneficial an outcome as possible taxes. If you leave them deferred, you're in that business partnership arrangement with the IRS where they get to control all of the rules and change those rules on you.

So you've got a great report and we're going to make that available in a link below today's podcast or you can contact us. But one of the things it emphasizes is that the rules under which you saved the money could be changed by the time you withdraw the money. And that's kind of a scary factor to consider. I tell people all the time, whether we realize it or not, the tax code is written in pencil and Congress has this gigantic eraser and they are constantly changing it. And the rules that you were promised when saving are almost guaranteed. The tax code will not be the same when you withdraw.

It's just a question of if those changes impact you. And, you know, as you mentioned, really what we're trying to do when we plan for retirement is not planned for the best of times. We want to make sure that if things don't go as well as we plan, Murphy's Law is still OK. We can still live the life we need. And when it comes to taxes, that's making sure we have some hedge against this risk that taxes could be higher in the future. Have we protected at least a portion of our retirement assets from that risk? What do you think are maybe some of the biggest, best opportunities that the American saving investing public should be paying attention to right now?

Or maybe some of the dangers on the horizon that we're hearing about that you don't know if they are really as dangerous as they're made out to be? Yeah, I'll tell you one thing that I think is very interesting, because we're hearing a lot of discussion about the estate tax and the estate tax exemptions. Of course, those higher exemption rates are also set to expire with the Tax Cuts and Jobs Act expiring in 2026. But while that impacts many savers with large estates, those exemption rates are going to be cut in half and then adjusted for inflation. I like to remind people that one of the largest estate taxes that most of us will end up paying is actually income tax. Because how many trillions of dollars in the US are going to be passed on to the next generation through excess funds in an IRA or 401k? And so I think that this rising tax environment doesn't just impact us. It impacts our heirs and our kids as we're leaving funds to them.

And it's almost this hidden stealth tax increase. If you remember during the SECURE Act in 2019, Congress actually changed the rules on if you inherit an IRA. And it used to be you could take that money out whenever you want.

Congress changed the rules and said for most people within 10 years, you've got to drain that account. So we now have less ability to manage those taxes as it benefits us. And if those tax rates go up, a lot of this excess IRA money that we saved more and we want that to go to our kids, is going to end up a lot less of it actually getting to them if we haven't done some kind of planning around that. Now, I talk to people and hear all the time, well, it's not my goal to leave a lot of money to my kids, which is fine.

Not a selfish notion in any way. I do not feel, you know, enjoy your money, spend your money during your lifetime. But the truth of the matter, the bottom line, Becky, if somebody has a plan for lasting, enduring financial confidence through their lifetime, more than likely something is going to be left behind. So why not understand these rules, plan efficiently and not leave the IRS as your largest beneficiary?

I agree. You may say you don't want to leave your kids a lot of money, but I guarantee you'd rather your kids have it than the IRS. Hey, what about this talk of unrealized capital gains? I know that that has been in the news cycle, in the headlines a lot recently. What do you make of that? Is that a realistic conversation? Could that come to fruition? Yeah, it's interesting. We have seen the Harris campaign back off of that talk a little bit in recent months. Some of it is it is very difficult to define and implement.

You know, there's a lot of challenges to that. I do think, though, that it uncovers this kind of latent risk, which is where is the government going to look for more money? The number one place I think is in tax deferred retirement plans, which I'm not bashing them. Look, I have IRA money.

I've got TSP money, which is like government 401K money. But there are trillions of dollars of untaxed assets sitting there. So that's an easy target.

Easy target. Once we get through that, where else? Well, we already have a lot of assets that are taxable every year. How can we get more assets into this bucket where every year Americans are having to pay taxes on them?

So I don't know if this particular cap gains proposal will go through, but I do think that we are going to be looking for ways as a nation under certain political parties that are going to be trying to find ways to make more money annually taxable because it helps the government's bottom line. Well, we know that there are risks, legislative risks, tax tax risk that we need to address and be proactive. It is, after all, planning, and we want to plan ahead as unpredictable as who holds those government offices and the House and the Senate and the seat of the president might be not just in this election, but in coming elections for decades. What we can do is plan proactively.

And, Becky, you are a big proponent of that. And I always appreciate your insight on what the goings on in Washington could have as far as impacts on an American saver and investors wallet. Yeah, I'll tell you, savers ask me all the time, what's the number one thing to do this year ahead of the election? And I tell them, you have to understand your retirement tax bill. Each of us today sitting here has a tax bill that has built in our retirement approach.

That a lot of us don't have a dollar amount. We don't know what our retirement tax bill might be. And I know you guys do tons of work helping clients identify and quantify that retirement tax bill before they can then take the step to reduce it. So I think the number one thing to do is get an analysis so that you know what your retirement tax bill might be. And then you can decide, am I comfortable with this tax bill or would like to do some approaches to reduce it?

Yeah. And of course, we've got that online retirement tax bill calculator at nine one nine retired dot com. That's retired with a D at the end, nine one nine retired dot com, where you can kind of do do your own calculation, see your own before or after or default to the IRS's plan versus being proactive. So that's a tool that we've put out there to try to be helpful for you, ladies and gentlemen.

But I agree, Becky, that is one of the biggest and best opportunities because I believe that being proactive with your taxes and controlling that tax bill, generally as effective as shooting for higher returns, but with far less risk involved. So I like that approach. Absolutely. Well, I always appreciate your insight, the time that you share with us and the viewers and the listeners here on the program. Thank you for being here and look forward to having you back maybe a little closer to the election or a post election kind of recap. Get your get your take and view on things.

Yep. I remind people this election doesn't going to solve our problems. It's just going to create new problems. We'll be back after the election.

We'll see where we need to focus on next. Always a pleasure, Becky. Thank you. Great seeing you. Hi, folks.

Peter Roshan here with Roshan Planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at 919retired.com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA. This is the Web site.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be. If you default and defer to the IRS's plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings.

So if you have not yet, go to the Web site 919retired.com. Run your numbers on the retirement tax bill calculator. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brookstone Capital Management, a registered investment advisor. Piduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.