Daily Capital

How Would a Biden Presidency Affect my Pocketbook?

This year’s Presidential election was yet another milestone in a year with a series of significant and dramatic events. 

In the 2020 U.S. election, nearly 160,000,000 voters — an estimated 66.4% of eligible adults — cast their ballots. That breaks a century-old record. After nearly four days of ballot counting, Joe Biden was declared by major news outlets to be the projected 46th President of the United States. Also unprecedented, sitting President Donald Trump has not conceded victory; his campaign intends to file legal challenges in several states. Based on markets during elections past — plus the challenged outcome of the 2020 election — we suggest investors brace for the possibility of increased market volatility in the coming weeks.

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While we recommend that investors brace for volatility, we want to also emphasize that increased volatility is not synonymous with “bad.” The markets will not always react in the expected manner, and as such we believe investors are better off not making allocation decisions based on politics, which tend to be very emotional subjects. 

History shows stocks fare well on average leading up to and following elections regardless of which party controls the White House.

However, like many voters, you may have lingering questions: How does the Biden tax plan affect me? How will this presidency impact Social Security, my healthcare costs, my education expenses, or the pandemic recovery?

To help you come up with an action plan for your money, following is an overview of what we know about Biden’s policies, and what you should do about it.

Biden’s Plans For Your Money

1. Taxes

Biden plans to enact a number of policies that would raise payroll taxes only on those now earning over $400,000 annually. Biden also intends to also raise taxes on corporations by lifting the corporate income tax rate and imposing a corporate minimum book tax.

What you should do: Regardless of income, we recommend that investors utilize tax-loss harvesting, implement tax allocation, and buy tax-efficient securities for an optimal tax strategy. For higher earners, take advantage of the historically low tax rates in place today, in preparation for higher tax rates in the future. A good CPA, in conjunction with your financial advisor, can provide great specifics based on your circumstances. 

2. Social Security

Biden’s plan includes expanding Social Security’s payroll tax base, now limited to $137,700 of earnings. He also intends to expand benefits overall, as opposed to reigning in the underfunded program. While Biden’s proposal would not eliminate the program’s 75-year shortfall, which has been a standard goal of policymakers for decades, it is projected to reduce the size of the projected gap by about a quarter.

What you should do: Social Security is currently underfunded. We advise that younger investors take a conservative approach by planning for reduced Social Security benefits or increased Social Security tax rate while they work. For investors in their 50s and beyond, we do not believe it’s likely that your benefits will be significantly altered, as there is little political will for such a painful change until it becomes absolutely necessary. 

3. Cost of Education

Biden’s proposals include universal preschool and two years of tuition-free community college and training programs. He also seeks to make public colleges, historically Black colleges and universities, and minority-serving institutions tuition-free for families making less than $125,000. Biden’s plan includes canceling $10,000 of every American’s student debt and revising the current loan repayment system.

What you should do: With the likely challenges of funding this program, we suggest families continue to plan to manage the majority of these costs on their own.

4. Cost of Health Care

Biden seeks to defend the Affordable Care Act from legal and congressional challenges and build upon the law. He intends to expand premium subsidies on the ACA exchanges to include people making more than 400% of the federal poverty level. He does not support Medicare for All, but he does back a public plan option similar to Medicare that would be available on the ACA insurance exchanges.

What you should do: We advise that investors optimize their financial plans to anticipate medical expenses during retirement. Healthcare costs vary widely based on your current health and health risks, as well as your location, age at retirement, Medicare coverage options, income levels, and employer-offered health insurance subsidies for retirement.

5. Pandemic Recovery and Stimulus Checks

Biden has an eight-part plan to help the economy fully reopen. He vows to provide additional stimulus checks to families but has not given specifics on amounts, eligibility or timeline.

What you should do: In order to weather the ongoing uncertainty of the coronavirus, we recommend that you build up an emergency savings fund that would cover three to six months of your average monthly spending. If you don’t have an emergency fund, or yours has been depleted, make sure you fully understand the ramification of taking funds from investment accounts. Also, for whatever fund you do have, we generally suggest keeping it in cash – be sure to keep your cash secure and flexible.

Creating A Financial Plan That Withstands Political Change

2020 has continued to reinforce the benefits of a personalized investment strategy designed for success over full economic cycles. Market timing, or betting on specific stocks based around things like the virus, sector bubbles, and the new presidency face difficult odds. Staying diversified and controlling the controllable may not always feel exciting, but it minimizes mistakes and provides you with the best chances for success in the long run. The best thing to do as an investor is make sure you have a sound, long-term investment strategy. Then just stick to it.

As we move toward the presidential inauguration and the nation continues to work through the COVID-19 pandemic, markets will continue to react. On top of caring about broad political issues that affect our quality of life, it’s just as important to care about the improvements we have the power to make in our daily lives. For those of us lucky enough to be thinking towards the future, things like finally starting that retirement plan, paying down debt, or improving spending habits will make a dramatic difference in the long-term.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Paul is a Certified Financial Planner® and has been with Personal Capital since they first moved to Denver in 2013. With over a decade of industry experience, Paul’s current role as Director of Advisory Service keeps him focused on a team of over 60 Financial Advisors and their clients.

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