How Elections Can Impact Your Financial Planning: What You Need to Know

With President Joe Biden not seeking reelection and Vice President Kamala Harris assuming the nomination to face Former President Donald J. Trump in November, this election season will be one for the ages. We vote for a President every four years, and with every new administration, some things will change, and some will remain the same.

Elections can significantly impact financial planning due to changes in government policies, economic priorities, and market reactions.

Here are some key ways elections can influence financial planning.

Tax Policies

Different political parties often have varying views on taxation. Changes in tax rates, deductions, or credits can impact both individual and corporate financial strategies.

After an election, tax reform may affect how much people pay in income, capital gains, and estate taxes. Financial plans may need to be adjusted to optimize tax savings.

Most notable is the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA brought numerous changes to the tax code, including reduced individual income tax rates, significant increases to the standard deduction, and a doubling of the estate tax exemption. The legislation also has a sunset provision, meaning many of the changes are set to expire at the end of 2025.

Financial Markets

Elections can cause market volatility due to uncertainty about future policies. Investors may become more risk-averse or speculative depending on the perceived likelihood of specific outcomes. Based on anticipated outcomes, leadership changes may affect critical sectors (e.g., healthcare, energy), impacting stock prices. A divided Congress may be looming, however, the potential for a split government could be a stabilizing factor for markets, preventing extreme policy implications from either political party.

Government Spending

Shifts in government spending priorities, such as infrastructure, defense, and social programs, can impact economic growth and sectors that benefit from government contracts or support. Fiscal policy changes, like stimulus packages or budget cuts, may influence inflation, interest rates, and overall economic stability.

Monetary Policy

Elections can affect the leadership of central banks, such as the Federal Reserve, which in turn influences interest rates and monetary policies that can impact borrowing costs for mortgages, loans, and business investments.

Healthcare Policy

Changes in healthcare policy, such as the Affordable Care Act or Medicare, can affect personal financial planning, including insurance costs, retirement planning as well as corporate costs, especially for small businesses.

Social Security and Retirement

Elections can change Social Security benefits, retirement account regulations, and pension reform. Adjusting retirement plans may be necessary based on changes in benefits, contribution limits, or tax incentives for saving.

For example, the Secure Act 2.0 builds on the original Secure Act passed in 2019 with some additional changes, all of which are designed to strengthen the retirement planning prospects for Americans. The Secure Act 2.0 contains dozens of provisions, all with varying effective dates, targeted demographics, and outcomes. With a possible administration change, including Congress, it’s important to consider how these policies could impact your financial planning.

Estate Planning

Estate tax laws and regulations around wealth transfer may shift after elections. Individuals may need to update estate planning strategies, including wills, trusts, and gifts.

Investing Behavior

During an election year, investing behavior can often be influenced by the uncertainty and volatility of a potential political transition. Recognizing that our emotions could override our best intentions, financial planning can help prioritize long-term goals and help you stay on course. 

Financial planning during election periods requires careful balancing between long-term goals and short-term adjustments. Consulting with your legal, tax, and financial advisor is a good way to put a thorough plan in place.

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This communication is provided by Bryn Mawr Trust for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that Bryn Mawr Trust believes to be reliable; however, Bryn Mawr Trust does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.