No matter how much your employer matches your 401(k) contributions or the government provides assistance, you are the one who will determine how successful your retirement will be. How you prepare will determine how your retirement looks.
But your retirement plan will undoubtedly be affected by external factors, many of which will be driven by the government. New laws – and changes to existing laws – can impact you in countless ways.
Today, I want to talk about four areas of your retirement plan that could be affected by government policy:
- Social Security
- Estate Planning
- Health Care
Social Security is almost assuredly going to make some changes in the relatively near future. According to the 2016 Social Security Trustee’s Report, it will start eating away at the Trust Fund in 2020 and will completely drain the fund in 2034.
That’s only if nothing changes. Social Security may be the third rail of politics, but Congress will need to figure something out.
Congress has all sorts of different options for how to deal with the issues that Social Security is facing. They may choose to wrap it in more duct tape to hold it together a little longer or put it on more a firm fiscal footing with a complete overhaul. Either way, we expect that something resembling Social Security, as it exists today, will continue into the future.
This goes double for folks who are currently in retirement, or getting close to retirement (though what qualifies as “getting close to retirement” will surely be up for debate). Last year, our Director of Financial Planning, Rob Cordeau, ran through what we think Social Security will look like going forward.
Taxes play a big role in pretty much everyone’s retirement picture. The tax landscape is pretty fluid depending on who’s in charge, so we can count on that changing in the future.
Speaking of Social Security, one of the most obvious ways to shore it up is through higher taxes. Even without the great Social Security conundrum, tax rates are pretty much constantly shifting. Depending on which “expert” you talk to, they could be higher or lower in the future, but there’s no way to know for sure.
Also of importance is how taxes will be assessed in the future. We probably won’t see anything like a national sales tax, but Congress may need to get creative when looking for sources of cash in the future.
Unfortunately, retirement accounts look like giant bags with dollar signs on them to Congress. Even if they leave the basics alone, simply playing with the rules around RMDs or contributions could mean big changes for your retirement plan.
Most estate planning is handled at the state level, which means countless jurisdictions are making and changing their own rules about what will happen to your stuff when you’re gone. It can be a mess to keep track of it all.
Over the medium to long term, pretty much everything is up for grabs. In fact, President-Elect Donald Trump says he wants to completely eliminate the estate tax. We could be looking at more changes to what is considered a taxable estate, the applicable tax rates, and how you need to structure things to protect your assets and wishes.
Estate planning is already complicated enough, but as you look to the future, the uncertainty adds another layer of complexity.
I saved the biggest wild card for last.
Retirees consume a lot of health care. And there’s some uncertainty (to put it mildly) about what the health care industry, including Medicare, is going to look like going forward.
At this point, we don’t really have a good idea what the health care landscape will look like in three years, let alone thirty. We could be looking at government-provided health care, an approximation of the system before Obamacare, or something completely different. We just don’t know.
But the situation is probably still going to be pretty similar to Social Security. People in retirement, or getting close to it (and again, what “getting close” to retirement actually means will be up for debate) will very likely continue to have health insurance provided by the government.
The uncertainty lies in what happens for everyone else.
We could easily identify fifty other areas where government policy will have a big impact on your retirement.
But it’s important to remember that how you prepare for retirement is all you can control (and the most important part of the equation).
If you save enough and stick to your retirement plan, things will probably work out reasonably well. If you don’t save enough, or don’t stick to your plan, you’re likely not going to be able to enjoy the retirement of your dreams.
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