Six ways Trump 2.0 could impact your retirement

What will the reelection of Donald Trump mean for your retirement security?

It’s too early for  predictions - we don’t know what the new administration’s policy priorities will be or how Congress will respond. But I’ll be watching a number of retirement policy issues with concern on everything from Social Security to Medicare, the Affordable Care Act and saving for retirement. 

Exhaustion of the Social Security trust funds still looms in 2035 - and several Trump proposals could accelerate that deadline by several years, requiring emergency action to avert steep across-the-board benefit cuts. Medicare may face further privatization efforts, making the program more complex and expensive for beneficiaries. Important new prescription drug cost protections could be under threat. The latest iteration of the Dept. of Labor's fiduciary rule protecting retirement savers probably will be jettisoned. 

Steps that the new administration and Congress might take in any of these areas could have a major impact on the retirement landscape. In my latest Morningstar column, I try to read the tea leaves.

Getting rid of the WEP-GPO is up for a vote in Washington

Two provisions of Social Security law that can reduce benefits for people who receive pensions from work not covered by Social Security are up for a vote before the end of the year in Congress. The Social Security Fairness Act would end the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). The bill already has passed the House of Representatives, and is scheduled to get a vote in the Senate. It’s not known if it will pass there, or if President Biden would sign it.

The WEP is a provision that can reduce Social Security benefits for individuals who receive a pension from work not covered by Social Security (typically, certain government jobs) and also qualify for Social Security benefits based on other covered employment. It was designed to prevent what lawmakers considered a "windfall" for these workers.

The GPO affects individuals who receive a pension from a federal, state, or local government job that was not covered by Social Security and who are also eligible for Social Security benefits as a spouse or widow(er).

These are two of the most odd features of Social Security, and they enrage people affected by them - understandably so. I’m keeping an eye on the Social Security Fairness Act and will write more should it become law.

RMD basics and reminders

People often get worked up over the topic of Required Minimum Distributions (RMDs) from retirement accounts—for understandable reasons. They require people to draw down a certain amount of tax-deferred savings after a certain age. If you have modest savings, the amounts will be small, and you’ll probably be drawing that much or more to meet your income needs. So, in many ways, an RMD is a nice problem to have—it’s an annoyance for those who have sufficient income from other sources that they would prefer to leave their tax-deferred savings intact.

This is RMD season, and Congress has revised the rules twice in recent years, pushing out the starting year for distributions. Here’s where things stand now:

• When: If you turned age 72 in 2022 or earlier, you were already required to start taking RMDs. If you reached age 73 in 2023 or later, you must take your first RMD by April 1 of the year after you turn 73. For your first RMD, you have until April 1 of the following year. After that, RMDs must be taken by December 31st each year.

• How: The amount of your RMD is calculated by dividing the value of your retirement account (as of December 31st of the previous year) by a life expectancy factor provided by the IRS. This factor is based on your age and, in some cases, the age of your beneficiary. Retirement account providers often will calculate RMDs for you. So will financial planners.

• Which accounts: Traditional IRAs are always subject to RMDs.

  RMDs also apply to 401(k)s, 403(b)s, and other employer-sponsored plans: You generally must take RMDs from these plans even if you're still working, unless you own less than 5% of the company.  Beneficiaries of inherited IRAs must also take RMDs, but the rules are different depending on the type of beneficiary and their relationship to the original account owner. You are not required to take RMDs from Roth IRAs during your lifetime.

The law doesn’t require that you take an RMD from each IRA you own. If you have more than one IRA, you can simply add up your RMDs from all accounts and make the withdrawal from a single account. The benefit here: you can pick whatever account does the least damage to your holdings. If one account has taken losses and you’d prefer to give it time to recover, make your RMDs from a different account.

For more on this, see the IRS summary page on RMDs.

Scammed: How a con man stole a woman’s savings

Washington Post personal finance columnist Michelle Singletary has deconstructed how one woman lost her life’s savings to a government impersonation scam. Singletary spent months interviewing fraud victims, law enforcement, policymakers and victim advocates, and reviewing scores of emails, texts and financial documents to show how scammers exploit human nature and technology to manipulate their victims.

Her conclusion? Anyone can be scammed. Though scammers target all age groups, seniors generally make the most lucrative targets. Here’s a gift link to the series.

What I’m reading

Delaying Social Security helps all couples, but high income more . . . Conflicts of interest on Medicare may haunt Dr. Oz nomination . . . Older women are changing the face of the labor force by postponing retirement . . . Care workers are predominantly low-income, female and immigrants . . . The low-down on tax advantages of donating through Qualified Charitable Distributions or donor-advised funds.