dsmWealth October 1, 2020

Kent Kramer, chief investment officer at the Foster Group, says the presidential election will most likely have an impact on your finances, but that any new laws will take time to create and pass.

How Will the Election Affect Your Finances?

BY STEVE DINNEN

Elections have consequences. In just a month, a very important election will take place, and there will be an economic impact on you or your business. How big or small depends on whether Donald Trump or Joe Biden takes the day, and to help us sort it out we talked with Kent Kramer, chief investment officer at West Des Moines-based financial planning firm Foster Group.

The bigger impact will come if Biden wins. Looking at the platform that Democrats have developed, Kramer sees this on their wish list:

A rise in the top marginal tax rate to 39.6%, from 37% currently, for individuals with more than $1 million of income annually.
A rise in long-term capital gains tax rate to 39.6%, basically following rates for ordinary income. This departs from the current three-tiered rates of 0-15-20% depending on your income.
Raise corporate tax rates to 28%, from 21%.

Republicans are still sticking to the platform they released in 2016. For now they are adhering to the tax bill passed in late 2017 after Trump was first elected. Broadly, it lowered corporate tax rates to 21%, from 35%, and capped the top tax rate for individuals at 37%, slightly below the previous rate of 39.6%. That bill also capped deductions for SALT – state and local income taxes – at $10,000. That item worked against Iowans, who shoulder a relatively high marginal tax rate.

Republicans have also talked about expanding Opportunity Zones. Investments made inside these designated areas – there are dozens in Iowa, including two in Des Moines – can qualify for some generous tax breaks.

Either man in the White House will want to do something to overcome the economic impact of the pandemic. Biden will want to make some kind of law that announces his arrival as President No. 46.

“If Biden wins, there will probably be some kind of signature legislation” to mark his presidency, said Kramer. But he cautioned to not to immediately hit the panic button, because any lawmaking “will take months, not days.”

Kramer, himself a former legislator in Iowa, noted that the signature legislation for President Barack Obama, the Affordable Care Act, took 15 months to pass. Trump’s tax bill took almost as much time. This relative slowness is good, noted Kramer. "You can’t make good policy when you’re changing the rules every day,” he said.

But be assured change will come. We’ll just have to wait until Nov. 3 to get a peek at it.

Pandemic Ultimately May Affect Your Social Security

BY STEVE DINNEN

If you turn 60 in 2020, happy birthday. The Social Security Administration even has a special gift for you – a drain on your Social Security benefit that promises to never end.

Social Security payments are based on your 35 highest years of earnings. There also is an index that is applied to the growth in average national wages until the worker turns 60, says Kiplinger’s Sandy Block, the always well-informed financial issues writer. This year, because of the economic downturn due to the pandemic, average wages will drop. It doesn’t even matter if your individual pay during the year was unaffected.

Andrew Biggs, former deputy commissioner of the Social Security Administration, estimated for Block that this downward adjustment will cause benefits for those 60-year-olds to fall approximately 9%. For someone who retires at age 67 – the year you can collect full Social Security benefits – Biggs pegged that diminishment at about $2,500 a year.

If you live to 84, you’ll receive Social Security for 17 years and pile up a deficit of $42,500. There’s no way around this other than to stall your retirement – you build up an additional credit of around 8% for every year you delay receiving benefits past full retirement age.

Just one more way this pandemic is messing things up.

Creating a Testamentary Trust

BY SUSANNAH SNIDER FOR U.S. NEWS AND WORLD REPORT

One component of your estate plan may be a testamentary trust, which is a legal document, usually created within a will, that becomes effective at your death.

Directing assets through a testamentary trust allows benefactors a degree of posthumous supervision over how their assets are disbursed. "It's kind of a way to maintain control after you're gone," says Jennifer Abelaj, senior counsel for Davidoff Hutcher & Citron LLP in New York City.

A common reason to create a testamentary trust is to provide for your children after your death. For example, if you still have young kids, you could design how your assets are paid out, giving your offspring one-third when they turn 18, another third at age 25 and the final third at age 35.
>> READ MORE

Pandemic is Changing Americans' Saving Habits

BY JENNIFER BARRETT FOR FORBES.COM

Financial advisers generally recommend putting 15 to 20% of your income aside to save and invest.

Yet at the end of last year, Americans were setting aside less than half that: about 7.2% of disposable personal income, on average. And that wasn’t unusual. Over the last decade, Americans’ average monthly personal savings rate (which includes money in savings accounts and investments) has ranged from 5.8% to a high of 12%, according to the U.S. Bureau of Economic Analysis. But it’s mostly stayed somewhere in the middle. Even during the Great Recession, the peak savings rate was just 8.2%.

But the events of the last seven months may mark a turning point in our savings habits. >>READ MORE

Jason Steele with Money.com explains why American Express Gold is his go-to credit card for groceries and restaurants.

MSN.com provides estate planning tips to keep your money in the family.
The New York Times reports on two new philanthropic databases that highlight nonprofits that are addressing social justice and pandemic issues.

dsmWealth is published on the first and third Thursday of each month and updated on dsmMagazine.com.

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