3 Big Financial Worries For Americans Ahead of The Presidential Election

As the U.S. presidential election approaches, a majority of American investors are worried about how it could affect their personal finances.

The most recent MassMutual Consumer Spending & Saving Index report showed that 86% of those surveyed were concerned about the impact of the presidential election on their “day-to-day finances.” About a quarter of respondents said that personal finances are the most important factor in deciding who to vote for in November’s contest between Republican candidate Donald Trump and Democrat Kamala Harris.

Most of the worries, according to other surveys and financial advisors, revolve around what a new administration could mean for retirement plans, stock market performance and tax policy.

“For those feeling concerned about the election, I’d encourage them to talk with their advisor to ensure their financial plan is built to last, regardless of who’s in office,” said Ayako Yoshioka, a Portfolio Consulting Director at Wealth Enhancement.

Impact on Retirement Plans

A recent survey by Wealth Enhancement showed that 80% of respondents expect the election to affect their retirement plans in some way.

Some investors are also worried about how the outcome of this election could influence how much they can rely on programs such as Social Security and Medicare and what the incoming administration would do about high prices.

Even though inflation has come down, prices of many goods and services remain elevated. Roughly half of all people surveyed said that high inflation derailed their plans for retirement, delaying it by 8.5 years on average.

Financial advisors fielding questions from their anxious clients are telling them that some turbulence may be expected.

“While there is technically some type of uncertainty involved with elections, it’s relatively short-lived,”  said Megan Gorman, Managing Partner at Chequers Financial Management, adding that advisors can help investors “tune out the noise and stay focused on long-term goals.”

Potential for Stock Market Volatility

Markets may temporarily react to big news, election outcomes included. Nearly a quarter of respondents in the Wealth Enhancement survey worried about how stock markets would fare after the elections and what it would mean for their portfolios.

Jamie Bosse, a Kansas-based CFP at CGN Advisors, notes that despite volatility in election years, the majority of the past presidential election years have generally yielded positive market returns.

“We’ve had 24 election years [since 1927]. And out of those 24, only four of those election years had negative [annual] market returns,” Bosse said. The four years with negative returns—1932, 1940, 2000, and 2008—included the Great Depression in 1932 and the Great Recession in 2008. 

In fact, according to a T. Rowe Price analysis for data going back to 1927, there’s not much difference in the average annual returns for the S&P 500—a barometer index for U.S. stocks—for election years (11%) compared to non-election years (11.6%).

“We believe that investment decisions should be based on longer‑term fundamentals, not near‑term political outcomes,” researchers wrote in the T. Rowe Price analysis. “Trying to time the market based on short‑term dynamics, political or otherwise, is extraordinarily difficult.”

Uncertainty Around Tax Policy

Both Bosse and Gorman have had clients ask them about the future president’s tax policies. And with good reason.

The Tax Cuts and Jobs Act (TCJA) is a 2017 law that lowered income tax brackets, increased the standard deduction, and raised the estate tax exemption, among other things. The law is set to expire December 31, 2025, and if Congress doesn’t act, it could make taxes even more complicated for some people. 

Gorman’s high-net-worth clients are particularly concerned with TCJA provisions related to the state and local tax (SALT) deduction cap and the increased estate tax exemption. 

Catherine Valega, a Boston-based CFP at Green Bee Advisory, said she’s been talking to clients about considering a Roth IRA conversion before income tax brackets potentially change.

In this strategy, you move your pre-tax retirement money from a traditional IRA into a post-tax Roth account. You may have to pay income tax at the time you convert, but the money would grow and withdrawals would be tax free. Such a conversion can prove to be a tax efficient if you expect to face higher taxes in the future.

“Conversions are important to think about,” Valega said, adding that investors should think about questions such as: Do we do them this year? Can we squeeze them in next year? What do our tax budgets look like?