Here we go with a second Trump term!
Once Trump go elected, the post-election reactions started pouring in.
Once Trump go elected, the post-election reactions started pouring in.
Here’s a sampling, with slight edits to simplify reading, preserve the flavor but also conceal identity:
“I am a recent federal retiree that panicked amid the last election outcome by moving my tsp to bonds. I am prepared to dip back into the market. Is it wise to wait or should I move more quickly?”
That sounds a little optimistic. Here’s some pessimism:
“After reading the news, the tea leaves suggest I may be faced with early retirement in the next year.”
And here’s some full-on panic:
“Job, healthcare, pension, SS…I’m getting really scared that it’s all going away, and I don’t know how to prepare for the worst.
I’ve worked 33 years for the gov’t so far. I’ve been paid under market value to get a pension… I stayed with the government for equal pay/equal work as a woman… I’ve worked on the “free code” because various places couldn’t afford overtime. I’ve worked weekends and holidays… Do people think we do nothing? Why are we so hated? I’ve dedicated my entire adult life to public service thinking I was helping. I’ve been proud to serve this role for our country. Why is this happening? What do I do? I cannot sleep. I’m 55 years old. I cannot just start over.”
I was still receiving emails like this just this week! Making decisions in panic-mode may not yield smart results. Do not panic sell!
Here are my thoughts:
First of all, we’ve seen elections before. We’ve even seen a Trump presidency before. The stock market goes up and down for both Republicans and Democrats. Nothing alarming here, from an investment standpoint.
From a job-security standpoint, that is also not new. We’ve had small government proponents in the past. Think Reagan.
From a job-security standpoint, that is also not new. We’ve had small government proponents in the past. Think Reagan.
However, admittedly, the new administration is openly prioritizing shrinking the government, creating a Department Of Government Efficiency and specifically naming departments that are on the chopping block. What percent of the federal work force does that impact? We don’t know. Which agencies are immune? We don’t know.
I would seem a smart idea to plan for RIFs or early outs. I run these scenarios for clients all the time, and I’m sure – just based on the email sampling above – that I will see an uptick in this type of planning.
What about Federal Pensions? It’s not clear that retirement benefits will be impacted. Keep in mind, Congress has the same Federal Benefits, so that may influence the way they approach cutting Federal Benefits. But, assuming they cut, what will they cut?
There’s speculation swirling around reducing the retirement COLA. I plan for this – all my client plans assume ZERO COLAs. There’s speculation swirling around FEHB, but even if they push retirees into Medicare, like Biden did with USPS employees (PSRA 2022), the Medicare late penalties were waived and Medicare pricing is only slightly more than FEHB (relative to outside commercial plans).
What about Social Security? This is the “third-rail” of politics. I actually don’t see how it’s acceptable to reduce Social Security benefits to current recipients, nor to the people on the cusp of retirement. I do think it is very possible, and in fact, a public-service benefit to tranche out changes to Social Security over the long term. Let’s be honest, back in 1930 when Social Security was introduced, people would collect at age 62 but likely die by age 65 or 70. That meant benefits were designed to last for 3-8 years. Nowadays, people collect SS at age 62 and it lasts them to age 90+! That’s 28+ years of benefits from a system that was designed to last for 3-8 years. That is why Social Security is broke and running out of money. Giant promises were made and they are impossible to keep. The fact that no one in gov’t does anything about this is a clear neglect of public service.
I think those who were on the cusp of retirement are relatively safe. However, those a distance from retirement may want to crunch their numbers, create projections, look at career paths, and maybe start marketing their skills outside of federal service.
I think those who were on the cusp of retirement are relatively safe. However, those a distance from retirement may want to crunch their numbers, create projections, look at career paths, and maybe start marketing their skills outside of federal service.
Regarding the stock market and your TSP, I’m not as pessimistic. Thankfully we live in a country that not everything is run by the federal government. Yes, that’s a good thing! If everything was run by the federal government, we’d have 350 million people’s lives being affected by the decisions of just a handful of people (for example, think of the Fed’s movement of interest rates and how that affects the entire country). That would be scary. Thankfully, we have 50 states and territories, each with their own governments. And, the new administration wants to delegate as much as possible to the states, which de-centralizes power. And, even on the federal level we have checks and balances. That’s a good thing.
Also, businesses have a vested interest in making profits. They study markets and adapt to meet opportunities. An overbearing, over-regulatory government is a challenge to business. A de-regulatory government is encouraging to business. Regarding Trump’s new policies and how they will affect the economy, that’s a wait-and-see. There’s reason for economic optimism. Here are 6 policies which I’m keeping my eye on, because they can usher in an economic boom!
1. Lower Taxes:
Lower taxes—whether for individuals, businesses, puts more money into circulation. Here’s how:
- For Individuals: Lower personal taxes mean more disposable income. When people have extra cash in their wallets, they’re more likely to spend it on stuff like goods, services, or investments, all of which fuel economic growth.
- For Businesses: Cutting corporate taxes allows companies to reinvest profits into expansion, hiring, or innovation. This can boost job creation and make American businesses more competitive on the global stage.
- Potential Reduced Social Security Taxes and potential auto-loan write offs: There’s been talk of other tax reducing policies. Reducing Social Security taxes or offering write-offs for auto loans, or both, frees up household cash, encouraging savings or discretionary spending. Both behaviors contribute to a healthier economy overall.
2. Energy Independence:
When the U.S. produces its own energy, it does more than just lower our dependence on foreign oil; it creates ripple effects throughout the economy:
- Creating Jobs: Expanding the energy sector means more opportunities across various fields—from extraction to engineering to infrastructure development.
- Shielding Against Global Price Shocks: By producing and selling our own energy, the U.S. can stabilize prices domestically, even when global markets are unpredictable.
- Boosting Trade Revenue: Selling surplus energy on international markets brings additional revenue streams into the economy.
3. Deregulation:
Reducing government regulations cuts costs for businesses, fosters innovation, and simply lets businesses thrive:
- Encouraging New Ventures: Fewer hurdles make it easier to launch startups or for small businesses to expand, which is crucial for job creation and economic dynamism.
- Fostering Innovation: In sectors like technology, deregulation can speed up the adoption of new ideas and products, keeping the U.S. at the forefront of global competition.
- Streamlining Processes: Regulations often create administrative burdens. Easing them allows businesses to focus on their core activities, like production or customer service, rather than compliance paperwork.
4. Cutting Government Spending (DOGE):
While spending cuts can be controversial, they can also create a foundation for long-term fiscal stability:
- Reducing National Deficit and Debt: The US has a national debt of $36 Trillion, and yet the Department of Defense has failed it’s 7th audit in a row, and cannot fully account for its $849 billion budget. The USPS is estimated to lose somewhere between $5 Billion – $10 Billion per year. These are just a couple of examples of lost dollars. As a result, the government runs a deficit, and needs to borrow more money, which in turn increases the national debt, erodes the value of dollar over time, causing inflation. Trimming government spending should free up money to decrease the national debt and thus restore strength and independence to the American dollar.
- Borrowing Costs: A smaller deficit means less reliance on borrowing, which can lower interest rates across the economy, making loans cheaper for individuals and businesses.
- Building Economic Resilience: A leaner government with reduced spending obligations is better-positioned to respond to crises without further ballooning the deficit.
- Strengthening the Private Sector: When the government scales back, resources can shift to the private sector, which tends to allocate them more efficiently (consider Space X vs NASA). This can boost productivity and economic growth over time.
5. Selling Federal Land for Housing:
Another proposed Trump policy is to use unused federal land for housing developments. This can be a practical way to tackle the housing crisis while stimulating economic activity:
- Addressing Housing Shortages: Currently there’s a housing shortage, with demand for affordable housing outpacing supply. Selling federal land creates space for development, helping increase the supply, and lower housing costs for families.
- Construction Jobs: Building homes on newly available land generates employment in construction, real estate, and related industries.
- Generating Revenue for the Government: The federal government benefits from the sale itself, (and state governments may benefit from tax revenue), adding funds to its coffers for other priorities.
6. Tariffs: Protecting Domestic Industries
Tariffs are essentially taxes on imported goods. While tariffs can be controversial, appearing as a roadblock to trade, however they can play a strategic role in bolstering the U.S. economy:
- Leverage in Foreign Trade Negotiations: America is either the wealthiest country in the world or one of the wealthiest countries in the world. As such, it is also one of the greatest consumer economies in the world. Other countries would love to do business with the USA, and some countries have the vast majority of their GDP resulting from American trade. When a country relies heavily on American trade, America can negotiate more ideal trade terms with them (this is what the US government does when they negotiate the best rates with their suppliers).
- Helping Domestic Businesses: By raising the cost of foreign goods, tariffs make domestic products more competitive, giving American manufacturers and workers a leg up, and increasing domestic job opportunities.
Can these policies be bad? There are counter-arguments to all the above policy proposals. Some will point out:
- Lower taxes only favor the rich. Which is not true, but sounds politically correct.
- Lowering Social Security taxes will destabilize Social Security. Which, let me point out, Social Security was already unstable, scheduled to run out of money within the decade.
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Deregulation makes the industries less safe. Which is not true, as people can and will organize their own ratings companies. See Moody’s and S&P, and others. Even DNB, which the government relies on.
- Energy independence will increase pollution and accelerate Climate Change. Which may happen, and innovation will need to solve for that. Keep in mind, the USA is not really the major culprit for pollution or climate change. See China and India.
- DOGE will cause people to lose jobs. Actually, DOGE will remove money from the governments pocket which will allow it to remain in the tax-payers pocket. Then the tax payers will decide who to buy stuff from. Essentially the tax payer decides who they want to employ.
- Selling Federal land will end up with ugly housing markets. This is questionable. Think to yourself, when you see a developed housing area, are they all ugly? Some are quite beautiful. But some are ugly. Usually the markets will determine which communities are the most appealing.
- Mass producing housing will strain the roads and infrastructure. This may happen, which may require roadwork or upgrading infrastructure, which is another job which helps the economy.
- Tariffs just cause the price of goods to increase. Yes, this is exactly correct, which then forces the two pros of tariffs (mentioned above) to come to fruition.
In Summary: These policies are aimed at strengthening the American economy, which will make American stronger and more attractive both domestically and globally for years to come.
I am optimistic and hopefully remaining rational.
Also, I would encourage anyone within 5 years of retirement to have a customized retirement portfolio created for them. Do not play around.
If you have any questions, feel free to contact me.
Email me here – stephen@stephenzelcer.com
