How to Plan Your Retirement Under President Biden

With divisions in Congress and Covid-driven economic challenges ahead, experts say retirement savers should keep an eye on interest rates, taxes and long-term planning.
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Now that former Vice President and Senator Joe Biden has been sworn in as the 46th president of the United States – bringing sweeping executive changes and a new approach to the economy – it’s an ideal time to review personal finances and retirement investments, and adjust accordingly.

What might you consider doing? With razor-thin Democratic majorities in Congress and big economic challenges ahead, the new administration will face a few headwinds. But keep an eye on interest rates, taxes and long-term planning, experts say.

Don’t Anticipate Many Legislative Changes

Spencer Betts, a certified financial planner with Bickling Financial Services, is not expecting major legislative changes with the new administration. “It appears they will be divided government or a very slight majority in both sides of Congress, so big legislation is unlikely,” he said.

Others share that opinion. “I don't think the Biden administration will do anything highly unusual, so I continue to stick with my investment and financial strategies,” said Larry Stein, president of Disciplined Investment Management.

Betts does, however, expect some policy changes including environmental, international and domestic spending that clients might look to take advantage. “Looking at your portfolio for ESG (environmental, social and governance) investments,” he said. “These themes will get stronger with a Biden administration.”

Fund families, Betts noted, have already started to adopt these themes over the past few years but they will accelerate. Fund families such as Calvert, Parnassus, Trillium are solely focused on ESG investing while larger money managers like iShares, BlackRock and Vanguard are starting to put a greater emphasis on it. “The new administration appears to ready to focus on these issues, said Betts. “As the Biden administration looks to reengage the world, we could see more trading opening up. That could make international investing more appealing.”

Focus on the Long-Term Plan

A new administration comes in every four years, so it is virtually impossible to plan your long-term retirement planning on elections, says Daniel Keady, the chief financial planning strategist at TIAA.

“From what I have seen in the past elections, making ‘knee jerk’ large financial changes based on the emotion of the moment often leads to regret,” he said. “Even if you could fully figure out the impact of the election -- unlikely -- on investing, remember elections, are not the only driving force in market performance. Clearly, Covid-19 is still a big factor for the markets and many other factors. Markets may go up or down regardless of which party is in office.”

Douglas Boneparth, a certified financial planner and president with Bone Fide Wealth, also believes the best move regarding the incoming Biden administration is to stick with your plan should you have one. “I think it could be more dangerous to make any sweeping changes ahead of the new administration taking office,” he said. “And if you don’t have a plan, now would be a great time to put one in place. If 2020 can teach you anything, it’s the importance of having a plan in place and sticking with it,” he said.

Focus on What You Can Control

Remember to always focus mostly on what you can control and this, said Keady, is great advice in election and non-election years. “You cannot control the economy, but you may be able to make sure you have an emergency fund in case of a recession,” he said. “You cannot control the stock market, but you can diversify your investments and rebalance them to maintain a risk exposure.”

Control, too, your spending to avoid high debt levels because, said Keady, individual debt is quite different then government debt.

For his part, Betts said things that are good to review no matter if there was a new administration or not are debt levels and interest rates. “There has been record mortgage refinancing in 2020,” he said. “Where is your current mortgage rate? Can you pay down any consumer debts like credit cards? Have you rebalanced your portfolio to make sure your portfolio risks are in line with your investment objectives? Have you reviewed your long-term financial plans? Are you on track?”

Tactical Moves for the Short Term

In the short term, however, if higher income taxes become a reality, having “capital losses make sense as they will be worth more in the future with higher capital gains taxes, said Steven Podnos a certified financial planner with Wealth Care.

Likewise, in anticipation of federal gift and estate tax rates becoming less favorable in the years to come, Podnos also said “some elderly may wish to gift to an irrevocable trust to lock in their estate tax exclusion,” which will be 11.7 million in 2021.

Cooling-Off Period

Before making a big financial move, Keady recommends having a “cooling-off” period before acting, instead of a “do-it-now” period. “Talk it over with your adviser and with your tax adviser first,” said Keady. “When it comes to taxes, remember that if tax changes happen their impact to you will depend on your financial situation. So, you need to understand your specific tax situation is predicated on your taxable income.”

What’s Best for You?

What’s good for your friend or relative isn’t likely good for you even if your friend or relative “knows investing.”

“Their advice may be poor for you even if it makes sense for them based on different goals, assets, income and situation,” said Keady. “Or their advice may be based on the noise of the day.”

Make Small Bets

Now if, by chance, you have a strong “feeling” and you have to act upon it, such as a given stock sector idea that could be helped by the new administration, only do it as a small bet with an amount of money that cannot hurt you, says Keady. “Use this as a pressure relief value to express yourself without risking your financial well-being,” he says.

From an investment standpoint, Stein said stocks continue to be much more attractive than bonds overall. “Our stock portfolios have shifted from a large cap focus to small caps and emerging markets,” he said. “On the bond side, we continue to have a shift toward corporate bonds and intend to use weakness in stocks to add short-term high-yield bonds to our bond portfolios -- the yields are similar to the long side and there's much less volatility.”

Be Thoughtful

Keady doesn’t recommend staying the course regardless of all future events. Instead, he recommends “staying the course and making prudent tweaks to evolve your financial plan over time in a thoughtful manner,” rather than reacting to the noise of the day. “Your financial planning should be a living document that can help you course correct but not overreact or underreact,” he said.

If like many, 2020 has created a major financial set-back, use 2021 as a reset year to begin to get your finances back on track to rebuild, said Keady.