How Trump's Tax Plan Could Shape Your Retirement Future?

Today, we’re going to answer the question: How could Trump’s tax plan shape your retirement future? I’ve been getting a handful of questions. There are six types of questions—six categories of Trump’s tax plans—that we’ll discuss today, and we’ll see how they shape your overall retirement future.

The six areas we’ll talk about today are his plan’s impact on Social Security, the Tax Cuts and Jobs Act, the estate tax, required minimum distributions, tariffs (of course, I get a lot of tariff questions), and the impact on our healthcare plans and policies. We’ll discuss this from a few different areas, and hopefully, it’ll give you a good idea of how Trump’s tax plans could impact your retirement future.

We talk about all the problems of the day and why we have to do something different, or we focus on the dangers of tariffs, but we rarely have a comprehensive discussion about the U.S. economy.

Social Security: Will Taxes on Social Security Benefits Be Eliminated?

Trump has mentioned, “I am thinking about eliminating taxes on Social Security.” As a result, retirees would have more money in their pockets.

Now, let’s start with how much of our Social Security is currently being taxed. If you have under $25,000 as an individual or $32,000 as a couple, then 0% of your Social Security benefits will be taxed.

When I say 0%, I mean the income you receive from Social Security will not be counted as taxable income. If all your income is Social Security, you’d list it as having no taxable income if 0% of it is taxed.

If you make between $25,000 and $34,000, 50% of your Social Security benefits will be taxable. If you are between $32,000 and $44,000 as a joint couple, 50% of your Social Security will currently be taxable. If you earn over $34,000 as an individual or $44,000 as a couple, 85% of your Social Security benefits will be taxable.

To clarify, 85% of your Social Security benefits would count toward taxable income. For instance, if you received $1,000 a month from Social Security, 85% of that ($850 per month) would count toward the calculation of your taxable income. However, it’s not that 85% of your Social Security income is taxed, but that it counts as part of your taxable income.

When Trump says Social Security income would no longer be taxed, he means it would no longer count toward taxable income. This would benefit retirees in the short term.

Social Security Running Out of Money?

However, we all know Social Security is projected to run out of money—not to the point where payments stop entirely, but to where only 70% of promised benefits would be paid. For instance, if Social Security promises $1,000 monthly, the program might only pay $700 due to revenue shortfalls.

If Social Security taxes are eliminated, it would speed up the timeline for these shortfalls. Current projections estimate Social Security will run out of full funding by around 2037–2041. Eliminating Social Security taxes could accelerate this.

All economic decisions are connected. Lowering the government’s taxable income decreases its revenue, which impacts its ability to fulfill promises. This ties into the larger discussion about the national debt and how these proposals would contribute to it.

All of Trump’s tax proposals are estimated to result in an $8 trillion tax reduction.

When planning your retirement, you should account for the possibility of Social Security paying only 70% of what’s promised, as this is a significant risk for retirees who rely on it as their primary income source. If Social Security runs out of full funding sooner, you may need to bridge the gap by adjusting your lifestyle or moving to a lower-cost area, like certain parts of Mexico—though safety concerns may limit this option.

Tax Cuts and Jobs Act: What Is the Impact of the 2017 Tax Cuts

The second question about Trump’s tax proposal we get is: What is the impact of the 2017 tax cuts, and how would that affect my retirement plan if they are extended?

In 2017, a handful of tax cuts were approved. The corporate cuts were made permanent, but the personal cuts for the average individual were temporary and are set to expire in 2025.

The question then becomes: What happens if these tax cuts expire? Naturally, taxes for individuals would increase, which would increase the revenue the government generates. For you as a retiree, this could mean needing to either offset the increased taxes or shift your investment approach to take advantage of government-incentivized options.

Even when certain tax breaks disappear, the government often incentivizes other types of investments.

According to data from the Tax Foundation, making the individual tax cuts permanent would increase GDP by about half a percent, increase GNP by about 1%, and add approximately 795,000 jobs.

This shows that keeping the tax cuts in place benefits the economy by allowing more money to flow into the private sector. Private sector growth can lead to innovation, job creation, and other economic benefits. On average, you can expect about 800,000 new jobs if these tax cuts are extended.

When looking at specifics like the estate tax and business taxes, we see additional job growth: 8,000 jobs from the estate tax changes and 120,000 jobs from business tax reductions. When it comes to restoring the full deduction for SALT (State and Local Taxes), which is currently capped at $10,000, that would generate approximately 540,000 jobs.

Trump has also proposed exempting overtime and tips from income tax, which could add hundreds of thousands of jobs. Over a 10-year span, these combined measures could result in significant GDP growth and nearly a million new jobs.

US Economy’s Debt Spiral

However, the question remains: Will this economic growth offset the cost of removing these taxes? Based on our experience over the last 25 years, we know that tax cuts do not fully pay for themselves and often add to the national debt.

With a current national debt of $36 trillion, we know that cutting taxes without reducing spending contributes to long-term financial challenges. This leads us to the critical trade-off: Increased economic growth and job creation versus the long-term cost of rising national debt.

For retirees, this poses a unique challenge. While economic growth is beneficial, higher debt levels could lead to inflation, rising interest rates, and increased living costs, which disproportionately impact those on fixed incomes.

Estate Tax: How Might Changes Impact Wealth Transfer?

The third question we’ll answer is: How might estate tax changes impact wealth transfer?

Currently, the estate tax exemption is about $14 million. If your estate exceeds this amount, the excess is taxed at 40%. However, this exemption is not entirely permanent. Half of it, about $7 million, came from Trump’s tax cuts, while the other half originated during the Obama administration and is more permanent.

If Trump’s portion of the exemption expires, the threshold would revert to $7 million. Estates over this amount would then be subject to the 40% tax, requiring strategic planning to minimize its impact.

Taking Action Today to Save Tomorrow

Strategies could include transferring assets during your lifetime. For example, you can give up to $18,000 per year per recipient without triggering gift taxes. For rapidly appreciating assets, you might use trusts to transfer ownership now and lock in today’s tax value.

If the exemption drops to $7 million, more estates would face tax implications. Without any exemption, as in the early 2000s, estates over $1 million were taxed. This would require even more creative planning to avoid substantial tax liabilities.

While eliminating the estate tax entirely would allow families to retain more wealth and potentially stimulate the economy, it would also increase the national debt, leading to inflation and reduced purchasing power. For retirees, this means needing more income to maintain their lifestyle, creating additional financial pressure.

Required Minimum Distributions: Could Changes Affect Retirement Planning?

The fourth question is: Could changes to required minimum distributions (RMDs) affect retirement planning?

RMDs apply to pre-tax accounts, requiring you to withdraw a certain percentage of your balance each year after a specific age. The government imposes these rules to ensure it collects taxes on the money you saved tax-deferred.

The starting age for RMDs has shifted over the years, from 70½ to 72 and, most recently, 73. Proposals are now discussing further increasing the RMD starting age.

If RMDs are delayed, your tax-deferred money can continue growing longer, potentially benefiting your overall retirement savings. However, when withdrawals do start, the larger balance might push you into a higher tax bracket. This makes it critical to assess whether taking smaller withdrawals earlier, while in a lower tax bracket, might make more sense for your financial situation.

For retirees, the main concern with RMDs is balancing tax efficiency. You want to avoid a situation where larger withdrawals later in life push you into a higher tax bracket, especially if combined with other income sources like Social Security, pensions, or rental income. It’s important to strategically plan withdrawals to minimize your overall tax burden.

If RMD ages are raised, it provides flexibility for those who don’t need the money immediately. However, the long-term impact depends on individual circumstances, such as whether your account balances grow significantly or if tax rates change over time.

Tariffs: What Are the Implications for the Economy and Retirement Savings?

The fifth question about Trump’s tax proposals and your retirement future is: What are the implications of proposed tariffs on the economy and retirement savings?

Tariffs are taxes on imported goods, and while they can help protect domestic industries, they often have unintended consequences. For example, Trump’s proposed universal 20% tariff on all imports, plus an additional 50% tariff on imports from China, is projected to decrease GDP by over 1% and eliminate 1.1 million jobs.

When tariffs are introduced, the cost of imported goods rises, making them less competitive with domestically produced goods. While this might benefit U.S. manufacturers in theory, it increases prices for consumers, reducing purchasing power.

Let’s use a simple example: Imagine you go to Walmart and see two 50-inch 4K TVs. One is $1,000, made in the U.S., and the other is $100, made in China. Without a tariff, most people would choose the $100 TV because it’s more affordable. If a $1,000 tariff is added to the Chinese TV, it now costs $1,100. This makes the U.S. TV the more affordable option, but the $100 TV is no longer available, effectively raising prices for all consumers.

Unforeseen Cost of Tariffs on Retirees

While tariffs might protect certain U.S. industries, they often result in higher prices across the board, disproportionately affecting retirees and those on fixed incomes. Additionally, tariffs can lead to retaliation from other countries, creating trade wars that further disrupt economies. For instance, China might stop exporting critical goods like semiconductors, or Canada could reduce oil exports to the U.S., raising costs in other areas.

For retirees, higher prices mean stretching savings further or re-entering the workforce to make up for increased living costs. Tariffs can also create market volatility, impacting retirement portfolios as global supply chains and economic growth are disrupted.

High-level, tariffs may generate revenue for the government—Trump’s proposals estimate $5 trillion—but this comes at the cost of reduced economic growth, job losses, and increased national debt, further straining retirees’ finances.

Healthcare Policies: How Might Changes Influence Retirement Costs?

The sixth and final question is: How might changes to healthcare policies influence retirement costs?

Healthcare costs are a major concern for retirees, and Trump’s tax proposals include potential changes to Medicare and the Affordable Care Act (ACA). These changes could significantly impact out-of-pocket costs for retirees.

Medicare is a critical program for retirees, and recent regulations have capped costs for items like insulin and prescription drugs. For example, insulin costs are currently capped at $35 per month, and Medicare Part D has limits on out-of-pocket expenses. Removing these caps would likely increase healthcare costs for retirees.

Additionally, discussions around privatizing Medicare—shifting more individuals to Medicare Part C (Medicare Advantage)—could raise costs further. Part A and B offer more flexibility in choosing healthcare providers, while Part C may provide more comprehensive coverage with potentially lower out-of-pocket costs but with more restrictions. Basically, Part A and B are considered “Original Medicare” and give you more freedom to choose doctors, while Part C offers a bundled plan with additional benefits but may limit your provider options. Privatizing Medicare (starting people on Medicare Part C) will lower the government’s expenses and should lower the debt. This cost would end up shifting to the individual consumer and could raise healthcare expenses for the individual.

Trump Tax Plan Healthcare Impact

The ACA, often referred to as Obamacare, also plays a key role in retirement planning. The largest demographic using the ACA consists of individuals aged 55 to 64. Those who retire early but are not yet eligible for Medicare. Repealing or altering the ACA would likely increase healthcare costs for this group, forcing them to pay more for coverage during a critical time before Medicare eligibility.

For the country as a whole, deregulating healthcare could reduce the national deficit by shifting costs from the government to individuals. While this might ease government spending, it would increase financial pressure on retirees who already face rising healthcare expenses.

Final Thoughts

Hopefully, what you’ve seen today is that economic planning is never simple. Every decision we make has ripple effects. What benefits one group might create challenges for another. As retirees, it’s essential to stay informed about these changes and understand how they might impact your financial future.

The key takeaway is to ask: What are we trying to achieve? Who benefits most, and are we okay with the costs? These questions guide effective planning and help you navigate the complexities of policies like Trump’s tax proposals.

Until next time, stay safe and enjoy life.

Dre

P.S. – Worried about how tax changes might affect your retirement? Schedule a personalized retirement planning session today! Let’s create a strategy that safeguards your financial future and maximizes your peace of mind. Clic k here to book your appointment!