Everyone’s eyes are on the economy as the November election draws closer. Former President Donald Trump just announced his running mate: Ohio Sen. JD Vance. With the ticket solidified, voters are wondering what this means for the future of their finances — specifically voters who are in the middle class and retired.
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The middle class comprises American households making roughly between $50,000 and $150,000. That’s not a lot, considering a 65-year-old retiring in 2023 might spend an average of $157,500 on healthcare. The financial situation for retirees seems to be on the decline: by 2050, the World Health Organization estimates 80% of senior citizens will reside in low- and middle-income areas.
Looking at those statistics, what can middle-class retirees expect if Trump and Vance win in November?
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Lower Taxes
One thing retirees might have on their minds is how their estates will be taxed, in addition to any potential income they’re receiving. If Trump wins the election, there might be good news ahead.
“One of the key components of the Trump plan is to renew tax cuts from his 2017 budget,” said Dr. Jim Ronan, a lecturer with the department of political science at Villanova University. “Therefore, there wouldn’t be an increase in areas such as stock dividends and estate taxes, which may factor into the minds of many retirees. Also, if retirees plan to maintain a part-time stream of income, a potential further tax reduction may be beneficial.”
Ronan is referring to the Tax Cuts and Jobs Act (TCJA). The TCJA had previously raised the income threshold for who is subject to estate taxes. It also increased the standard deduction taxpayers can take, lowered the income tax rate, and increased the Child Tax Credit.
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“Optimizing taxable income during retirement is crucial, as up to 85% of Social Security benefits can be taxed if income rises above certain limits,” said Brenton Harrison, a financial advisor and founder of New Money, New Problems. “And Medicare Part B premiums increase for higher earners as well. An extension of the TCJA might help in these areas.”
However, Harrison cautioned that retirees in states where income tax is already high could be in for a rude awakening if the TCJA is extended.
“The TCJA negatively impacted retirees in states with high income taxes, such as New York and California, by placing a $10,000 cap on the amount of local taxes that can be deducted on federal returns. Since many large cities also charge a city tax, the current cap could mean portions of income for retirees in these areas will be subject to three levels of taxation: federal, state and city.”
With all of that said, the average retiree might not feel a huge jolt to their wallet. David Schultz, professor of political science and legal studies at Hamline University, said that, though middle class retirees will benefit a little, most of the perks of TCJA will be felt by the upper class.
“Trump has pledged to make his expiring tax cuts from his presidency permanent if he is elected,” Schultz said. “If this happens, retirees, especially at higher income levels, will benefit. For most retirees, making these tax cuts permanent will not matter as much.”
Regardless, Harrison said you should consult a tax specialist after November to see how the new president (Republican or Democrat) will impact your taxes going forward.
“The economic policy of any president will have certain features that benefit a taxpayer and others that make life more difficult,” Harrison said. “It’s important to do your research and/or hire a professional so that you’re aware of relevant policy and have an idea of how to integrate it into your planning.”
No Healthcare Cuts
As referenced earlier, retirees spend thousands of dollars on healthcare, making it a key issue for them when it comes to voting. With Trump in the White House, Ronan said retirees likely would see more of the same when it comes to healthcare.
“In terms of healthcare, there have not been specific proposals thus far,” Ronan said. “However, the GOP platform pledges no cuts to Medicare or Social Security, along with no increase to the retirement age.”
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Future Retirees Might Be in Trouble
Just because those who are currently retired would not see changes to their Social Security payments doesn’t mean future retirees would have the same luck.
“Four years of Trump would continue to exhaust the Social Security Trust Fund, making it likely that full benefits could not be paid past 2035,” said Michael Montgomery, an intermittent lecturer in the department of health and human services at University of Michigan-Dearborn.
Schultz agreed, saying that no matter which nominee is elected, the livelihood of Social Security will need to be addressed.
“Studies suggest that in the next few years Social Security and Medicare face insolvency problems and possible cuts unless something is done,” Schultz said. “No candidate seems to want to discuss this issue; but, for retirees, it is a looming major issue,”
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Whatever Happens Will Be Gradual
Ronan wanted to reiterate that, no matter who is in the White House, the American public wouldn’t feel a significant economic change for quite some time.
“Although budget and tax proposals receive a lot of attention during a campaign, their impact tends to be delayed. For instance, a new president will take office in January 2025, but a budget proposal usually is not delivered to Congress until June. Then, Congress takes a few months to deliberate and amend, so the changes probably won’t be felt until early 2026.”
Jordan Patrick, a senior financial advisor at Truepoint Wealth Counsel, said it’s normal to want to take action based on who is in the White House, but it’s better to think long term.
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“While no individual has control over who will be elected, it is important to focus on the things that you can control related to your finances,” Patrick said. “As a financial advisor, I’ve seen people take drastic actions that were based on emotions driven from media headlines.
“During this election cycle, be sure to maintain a long-term perspective and stick to your financial plan. Don’t let headlines cause you to take action that you might later regret. Focus on understanding where your money is going and increasing your savings so that you have flexibility regardless of what may be happening in the political arena.”
