It's official: Donald Trump will become the 45th president of the United States. One thing we should all be able to agree on, regardless of whether you were a Donald Trump supporter during the campaign or not, is that it's a good idea to know what to expect in the years ahead. With that in mind, here's how a Donald Trump presidency could affect you from a personal finance perspective.
The stock market
On election night, the markets went crazy when it started to become apparent that Donald Trump would win the presidency. In fact, during the overnight hours, Dow Jones Industrial Average futures were down by approximately 900 points at the low -- even more than they dropped after 9/11.
However, by the next morning and certainly over the following days, markets quickly shrugged off their worries about Trump, and then some. With a Republican-controlled Congress, many of the upcoming policy changes should be rather business-friendly. Historically, when we have a Republican in the White House as well as Republican control of both houses of Congress, the S&P 500 gains 16.36% annually, on average.
Your personal income taxes
I recently published a thorough guide to Donald Trump's tax plan, but to sum it up, Trump wants to consolidate the seven tax brackets we have now into just three, with tax rates of 12%, 25%, and 33%.
In addition to this, Trump wants to raise the standard deduction to $15,000 and $30,000, for single and married taxpayers, respectively, while eliminating the personal exemption and head-of-household filing status. He also proposes a higher child-care deduction, and also wants to repeal the Affordable Care Act and the 3.8% surtax on certain investment income that came with it.
Trump's tax plan would represent the most dramatic changes to the U.S. tax code in the past three decades. According to a report by financial-advice company Personal Capital, "Trump wants wealthy Americans to pay their fair share, but not at the expense of destroying jobs and undermining the ability to compete."
Since there is no guarantee that Trump's plan will be passed in its entirety (or at all), Personal Capital advises Americans to use certain tactics to increase their tax efficiency. These include tax-loss harvesting, which refers to selling losing securities at a loss to offset gains, as well as allocating higher-yielding assets to tax-advantaged retirement accounts, and buying tax-efficient securities such as most ETFs.
Your Social Security
Social Security is a major concern for millions of Americans, and it's easy to see why. About 10,000 people reach retirement age daily, and 61% of seniors rely on Social Security for at least half of their income in retirement. In addition, while Social Security isn't broke, the system is projected to run out of reserves by 2034, so something will need to be done.
Trump has pledged not to touch Social Security or Medicare, claiming that his plan to create economic growth will take care of the Social Security funding problem. To be fair, a rapid economic "growth spurt" would certainly help. More jobs and higher wages would translate into more payroll tax revenue flowing into the system. However, most experts agree that to sustainably fix Social Security for the long term, we'll either need to cut benefits or increase taxes.
The Personal Capital report I mentioned earlier suggests that, because of the vagueness of Trump's Social Security plans, it may be a good idea for people to maximize their Social Security benefits as much as possible. This means waiting longer to claim benefits, and not taking payments early simply out of fear that Social Security will completely run out of money someday soon. It's important to know that even if the program were to run out of reserves altogether, incoming payroll taxes would still cover about three-fourths of benefits, so when someone tells you that Social Security will go broke and stop paying benefits, don't believe them.
Paying for education
The rising cost of college tuition and the student debt it has created are a big financial worry for many Americans. Trump acknowledges that this is a problem, although he takes a more "free market" approach than Hillary Clinton and other Democrats do.
Trump plans to redirect another $20 billion toward education and also encourage the states to significantly boost their education spending. He also plans to work with colleges to tackle the problem of rising costs and student debt, and offer tax incentives to schools that cooperate.
Since there's no way to know whether Trump will be successful or not, it's still a good idea to plan ahead for college expenses. A 529 Savings Plan or Coverdell ESA could help you and your family invest for the cost of higher education ahead of time.
After the election, Trump said that fixing healthcare is one of his highest priorities. He has repeatedly promised to repeal the Affordable Care Act, and the fact that premiums, according to recent reports, will be going up in 2017 by 25% on average will affect the wallets of millions of people.
Trump and his fellow Republicans have pledged to repeal the ACA and replace it with a better plan, which includes incentives to use Health Savings Accounts, as well as provisions that will allow Americans to purchase insurance across states lines to create competition.
What you should be doing
At this point, there's no way to know for sure what Trump's presidency will mean to your finances, but there are some things you can do that are good long-term financial practices, no matter what the current political climate is. Invest with a long-term mentality and tax efficiency in mind, claim Social Security at an age that makes sense for you, take advantage of the tax-friendly ways to save for education, and plan ahead for healthcare expenses.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.