The Election Is Over, Now What? Webinar

Thank you everyone for joining us. I know we’re still having a few people log on, but we have so much information to share today. I wanna go ahead and get started.

So thank you once again for joining us. My name is Kara Duckworth. I’m the managing director of client experience here at Mercer Advisors, and I’m very pleased to be joined today by two of my colleagues, Jeremiah Barlow, the executive vice president and head of our wealth solutions team, and Jennifer Beck, who’s our vice president of financial planning.

Both of them have really been digging into all of the details of what’s coming and potential changes in financial planning and estate planning and tax planning, and we’ve got a lot prepared today to share with you.

To start with, we should say that this information is all for informational purposes. It should not be considered to be specific advice about your personal financial situation. So any of those questions that you may have about your particular plan, your particular portfolio, we would ask you to direct those to your own wealth adviser.

And what we’re gonna be providing today, is gonna cover a lot of topics, and we know that many of you submitted questions to us beforehand, so thank you for doing that. We’ve recorded them. We we’re going to address some of them as we go along, but we’re also gonna be taking live questions as well. So if you do have them or have questions, please submit them to the q and a box, which is at the bottom of your screen.

We will get to as many of them as we possibly can. We’ll also let you know that this is being recorded, and, we’ll go over where it’s posted. It’ll be on our website, but just, just so you do know, if you miss any of this or you wanna review it again later, happy to do that. The recording will be available.

So we’ve got a lot to dive into. We’ve got a lot of conversation to have. So, Jeremiah, I’m gonna turn it over to you and maybe give us an overview.

Fantastic. Thank you. Excited to be here with you as well as with, with Jennifer to to walk through really the the impacts that that we see coming from, the election results. You know, the the votes have been counted. I would say the results are ultimately largely final. And throughout the election season, there were a host of policy conversations, issues, promises made, and raised.

And what we wanna do is we expect is that those will carry through into the new administration, into congress, and and really important to kind of look look at these and see how they’re gonna impact our clients. Because that that’s what all of our advisers are doing. That’s what we are doing. That’s what Jennifer and I are doing and Carrie is doing. From a from a big policy theme perspective, if you gotta look at what you’re seeing on the page on the left hand side, there were a lot of, policy themes, but these are the big ones. One is tax policy for sure, tariffs, your federal government efficiency, as well as deregulation.

While the policy themes are helpful, what’s even more, I think, enlightening and and impactful for for all of our clients is what does this actually mean for them? Like, how does this translate into reality?

And, what we are seeing is that that there’s going to be changes relative to things like, the the the Tax Cuts and Job Act likely and higher inflation costs and, you know, cost shifting to states and federal governments and so on.

Similar dynamics, across other components. But, Jennifer, I’m not sure if you have any items that you wanna chime in on that as well.

I I I definitely want to reiterate that these themes, it’s a little early to know how they’re going to play out. And the decisions made in the year ahead, they’re gonna be impacting our clients for sure, from a financial planning lens. And so that’s what I wanna focus on in today’s conversation is how we look at it from financial planning purposes.

Different a little bit from, like, the investment scope.

Hundred percent. At this point, I think it’s important to evaluate kind of what might happen, right, based on the statements that are occurring, throughout the campaign trail.

Not that everything said will turn into reality, from the campaign, but but it does have a lot of impact. Right? And and I what we’ll ultimately do, I think, is really bringing to light over this conversation, what those impacts are through, running projections, looking at scenarios, what does it mean to stress test your plan if some of these things have downside impact, and then just what are those what ifs. Right?

Yeah. And I wanna stress that at Mercer, we have this great team of people.

For example, the director of financial planning, Brian Strike, you’ll be hearing from him as policies and things start to actually get enacted.

There are so many smart, brilliant people who actually read through every single proposal. And then, or and as they get rolled out, keep advisers and clients updated on how it’s actually going to impact their situation.

As for an example, IRS finally just published all the tax brackets and retirement plan numbers for twenty twenty five, and, these are things that we can implement right away. They’re different from what was happening in that what happened in what’s going to happen because of the election.

But they are policy changes that are meaningful to our clients because it helps us decide how much we’re going to be gifting, how much the state tax is, how much we can put into our retirement plans, and from secure two point o. That some of that law is being enacted this coming year. And so it allows people to be able to put more into their retirement plans if you’re from age sixty to sixty three. And so there are all these little nuances that we work really hard to keep our advisers abreast of.

Hundred percent agree.

Since there is so many moving pieces, what we will focus on are are these policy things over the next hour, the tax policy, tariffs, federal government efficiency, deregulation, and, ultimately, how does that translate through the financial plan, through through real time scenarios and so on. Some of you might be asking, though, kinda like, why does this matter now? Right? Why why is this different today versus every two years that we have elections, every four years, which there’s a presidential election? And and I think it’s important to kinda laser focus one’s lens on the on kind of what the past might have looked like versus now.

And let’s start, like, in Washington at the Capitol.

In in the past, just a couple years, I’d say we we’ve been in what I would call a a fierce gridlock, right, between, Congress.

Just put numbers, to to reality. Just in the last two years, we’ve had roughly about two percent of the bills passed when normally we see somewhere around, like, four to five percent.

And, in in in construct that, you know, out of eighteen thousand bills, that’s only two percent passed. Then again, about half of what we normally see. We don’t normally see a lot, but, what that ends up looking at is, like, a a less productive congress, and with the from what we’ve seen in the past.

Today, though, we we would likely see going forward something very, very different.

We used to have a scenario where, you know, Republicans now control the US Senate as well as a narrow majority in the house.

There’s a couple vacancies coming in and out as people are being tapped for for various posts. But, as those get filled, that’ll start to shape out a little bit more.

But there is a narrow majority in the house, and there’s actually a narrative there that we’ll talk a little bit about today.

And, of course, add that to president-elect, Trump’s, seat in the White House. You now have this full sweep of the GOP in Washington, and and that matters. The last time we saw this was in two thousand seventeen when, president Trump had a similar situation, and we actually, in that construct, saw about an eight percent passage of bills, so about four x, what we’ve seen over the last four years.

And and that’s impactful. Right? We’re gonna see a lot more activity happening, and that’s why it’s important to look at these these themes that came out in the campaign because we could really see that translate, especially in this year to come, around what’s gonna ultimately happen and and how are those agendas gonna shape out.

And what’s so important it’s so interesting to watch is that although there’s a majority, the majority in the house is very, very thin. And, in the last and and the house actually held this majority in the last couple years where it was considered sort of unproductive.

And, and and Republicans in the house had struggled to stay on the same page about a lot of issues. There are a lot of promises made, but there are also a lot of people who are like deficit hawks and and are going to, disagree. And so it’s going to be really important to see how the details get rolled out. So there is this promise out there, but how is it going to be enacted? What are the compromises? What are the trade offs? What are the things that are gonna happen that ultimately tell us what to do with our financial plans?

Hundred percent agree.

I think one of the big ones that’s gonna impact our financial plans is is taxes and the the tax policies out there.

And and I think it’s a it’s it’s a natural shift to that before we dive into some of the other components to kinda to set the scale, and understanding and foundation, of what does that mean.

I think two thousand twenty five, for the sports fans out there, is gonna be the Super Bowl of tax policy change.

No guarantee, but the one of the reasons I say that is, this thing called the Tax Cuts and Job Act, is is set to expire, largely at the end of two thousand twenty five as we enter into two thousand twenty six. And that has a significant impact. Right? And I wanna what I I think will be helpful, is understanding what those changes would be and, like, what are the expirations and then then using that, I think, Jennifer, to walk through some scenarios, around how does that actually translate into real life.

Let’s maybe spend the next few minutes doing exactly that. That’s what it’s good for for you.

So so tax cuts and job act for the for the for the tax, nerds out there like me, it it was it was passed into law, in two thousand seventeen, went to effect in two thousand eighteen, and largely one of the largest, tax overhauls or, changes to our tax policy, in decades at that point.

And, an important nuance around the tax cut and tax cut and job act was that it was passed through what we call reconciliation.

And in simplest terms, what that really means for us all is that, reconciliation happens when, you can pass changes, use puts and takes, but, basically, over a ten year period, it’s you’re not gonna increase the deficit.

So any change that happens needs to be offset by either cuts elsewhere or revenue increases somewhere else. Right? So there needs to be this, like, level set at the end of ten years, and that’s exactly what happened with the Tax Cuts and Job Act. So when it expires, in two thousand, twenty five, if it didn’t expire and it just continued on for the for the next, remaining years, there’d be about a four trillion dollar impact, to the deficit.

So we’ll talk a little bit later about, like, what does it mean to extend it, and that that is kind of one one sound bite to that is, like, we have to figure out how to cut four trillion dollars of, of extra spending. So or generate revenue to offset that. Right?

So so at the end of the day, we have the the the history is important, but, the code itself, the tax code as a whole, it is is extremely nuanced. There’s a lot of moving pieces. The tax cuts and job act changed a lot. So I’m not we’re not gonna go through all of it today.

Just to put me put it in perspective for us historians out there, the tax code as a whole, if you kinda go back to, the early nineteen hundreds, when when the tax cut effectively was introduced in nineteen thirteen, it was only twenty seven pages, like, in total, and it was really small pages too. And, today, it’s over sixty eight hundred pages, of full eight by elevens, and, there’s a lot of elements to talk about. But today, what we’re gonna focus on, when we think about what expires is really just these six items over here on the left. There could be others, and you can ask questions about it.

Would would would love to, hear if we touch on items that or don’t touch on items that you wanna hear more about. But we’re gonna go through each one of these, and I wanna bring to light what does it mean when the tax cuts and job act expires because it’ll also show the value, if there’s going to be a lot of energy over the next year about extending it. Right? And what does that mean from an impact perspective?

So so going right through these, the tax rates and brackets are obvious ones. You can see a representation of that over on the right hand side to to bring it to life. But in short, the tax cuts and drawbacks went into effect, it lowered and stretched out the tax brackets.

And so it dropped the top marginal rate from thirty nine point six percent down to thirty seven percent, and then it really elongated out higher, how each income bracket is going to be taxed at a lower rate. So when it it expires, the impact is that that the top marginal rate goes up by an additional two point six percent, and, those brackets get tightened to back down. So you’re gonna hit higher the next tier percentage increase of your marginal rate, at a lower income, right, which which has a a direct impact, and we’ll talk about that here in a little bit.

I thought that would be real quick is that the biggest impact is hitting for those who made over two hundred thousand dollars in income or more.

That’s really where the biggest impact is going to be. There is some impact below, but it’s not as significant.

And you’ll see that, you know, even in the highest you don’t hit the highest bracket, until you’re way up into, you know, over six hundred thousand.

So I said I thought that was meaningful in terms of who it impacts the most right out the gate.

Hundred percent agree. It’s actually a really, really, really good point, around understanding, like, who does it affect. Right?

On that note, importantly, is the deductions component.

So so deductions lower the amount of of of income that will ultimately result in taxation, or at least the representation of of adjusted gross income.

And the Tax Cuts and Job Act basically got, rid of or eliminated our schedule a deductions. For the most part, charities are still in there and some others. But for the most part, schedule a deductions removed. But to trade off on that, they doubled effectively doubled the standard deduction. And you can see that representation down in the bottom right, around in the the pretax cuts and job act, it was for married filing jointly, it was twelve thousand seven hundred. That was catapulted up.

And now in two thousand twenty five, it’ll be about twenty nine thousand dollars. However, when it expires, it’s gonna drop back down, right, to to almost half, in that sixteen thousand six hundred range if you’re just looking at the married filing jointly.

Although the schedule a deductions come back, you do see this big shift in in standard deduction going down, which means in order to get benefits on deductions, you’re gonna need to have much more write offs. Right?

And, there is a trade off relative to that, because a lot of the deduction items and what I’ll call, like, AMT are gonna come back, which will limit how you get the impact of those deductions.

So, like, for example, check the the the child tax credit, for those who have that. Right now, it’s a two thousand dollars with a phase out, at at four hundred thousand dollars for married, filing jointly. That gets cut in half in almost every respect. The the credit goes down to one thousand, and it gets phased out at only a hundred and ten thousand. Right? So it’s actually off almost a four x decrease in the phase out number, which again starts to affect, like Jennifer mentioned, those making in that, two hundred thousand dollar plus range, especially with children and many children.

AMT, similarly. Right? The the AMT is kind of the gotcha tax, and that went away, and then it is it is definitely coming back. It’s a scope being broadened back to where it was.

To make it simple, AMT just ensures that everyone’s paying a minimum tax over a certain threshold.

Twenty eight percent is that magic number. So, even if you have lots of deductions, they get added back in, things like incentive stock options, you know, muni bond interest. If you exceed the threshold, it gets added back in. Today, that threshold is one point one million dollars if you’re married, filing jointly.

That drops down to a hundred and sixty four thousand dollars.

So very impactful, starts to apply to a lot more people.

And and as you’re starting to just check these off, you’re hopefully, the realization you’re getting is, wow. Like, things really do move the needle.

The QBI or qualified business income, similarly, this applies to pass through business income. This is that one ninety nine a deduction that we have affects many who have small businesses to medium sized businesses, but it’s that pass through income. And it was effectively, trying to equalize the fact that the the corporate rate had gone down to twenty one percent, on, like, c corporations and such, but the ordinary income rates are higher. On pass through income, it flows down to your your ten forty. So they would try to equalize that, and the the QBI goes away.

Importantly, though, the corporate tax rate is something that does not change when the expiration of the tax cost and job act occurs. So that will stay at twenty one percent, at at the end of the day.

But that’s an important deduction that gets lost. Add that in the AMT, and and all these other moving pieces, and it really starts to move the needle.

I’ll maybe skip over a state tax for just a second and talk a little bit about the SALT tax because not only is it on top of mind for many who are in high income states, but it’s one that has a lot of airtime, around is it going to get removed.

And, right now, there is a one of the itemized deductions is your state and local taxes, which is SALT, that is capped at ten thousand dollars. Some states have figured out ways to get around that, but or options for new maneuvering, around it. But there is talk about, if if the Tax Cuts and Job Act is even extended about increasing the SALT gap. Right? As of right now, the the SALT cap would go away if the tax cuts and job act were, were, were to expire as it currently is planned.

And then the estate tax is, again, one that has had a lot of airtime, over the last few years outside of of the tax policy changes.

Right now, it sits at almost fourteen million dollars, which means, throughout your life or when you pass away, you have about fourteen million dollars in two thousand twenty five. You can you can give away a state tax free, but that gets basically drops to fifty percent of that, effectively around seven million dollars. Once this expires, again, affects people with larger estates, but it’s it’s an additional tax on top of the income tax you already paid. So it actually has a significant impact at the end of the day.

I said a lot there, but, I I think taking all of that and putting it into real, reality, I think is an important lens that we should take a second to do.

And and to do that, maybe I’ll hand it to you, Jennifer, to to maybe bring all of this to life.

Sure. So let’s take a look at an example.

And this was just a mock up for a retiree, a sample client.

And the impact to John and Sally. Let’s say they are age seventy two and seventy. They’re married filing jointly.

They have about a hundred and fourteen thousand five hundred dollar AGI.

And it is it it consists of two sources of income, IRA withdrawals and fifty seven thousand dollars of Social Security income. And let’s say that’s the income that they’re getting.

In the current situation, in twenty twenty six, if there is no sunset, the standard deduction that they get to take off of the hundred and fourteen thousand is thirty four thousand two hundred. And so it’s pretty large number. So, really, all they’re getting taxed on is eighty thousand three fifty. And then if you throw that into the different marginal tax brackets, their ultimate tax that they pay is eight thousand five hundred and twenty one dollars.

Now this is if the TCJA does continue to in its current state and it gets extended. If there is a sunset, which it will it’s right now, it will sunset in December thirty first of twenty twenty five, what will happen is that those same numbers, you see where the standard deduction is now nineteen thousand nine fifty, different from thirty four thousand, But what they get back is an exemption, from the old state law old tax laws, and their taxable income is a lot little bit higher, eighty three thousand nine hundred. And the tax ends up being ten thousand five seventy five. And so this just shows you that there’s an increase of two thousand fifty four dollars.

That’s what happens if TCJA sunsets for this particular client. I think it’s really meaningful to do this tax professional. We can run a projection giving your nuances. Everybody is so different, and the elements, Jeremiah was saying how big the tax code is.

And and we often see tax returns that are seventy five to a hundred pages long now. It’s incredible. So there’s so many different elements to use here.

So, Jennifer, before before we move on and talk about another case study, with this particular example, retirees, and there’s a pretty healthy income there from Social Security. So we’ve got several, questions, Jeff, Steve, Gail, Leslie. They’re coming in fast and furious in the comments here. Can you talk about the taxation of Social Security? There’s been a lot of talk about Social Security wouldn’t be taxed, but there are some, rules now about taxation of Social Security that maybe everyone isn’t aware of. So if you could talk about that, that’d be super.

Great. There’s, there was a lot of promises made on the campaign trail from both parties, not taxing Social Security, not taxing tip income. That was both parties said that. There was also a thing about, like, maybe car loans will become deductible, like mortgage and mortgage interest.

And then there was, so, yeah, Social Security not being taxed is something that is a high interest. Right? There are so many people collecting. In this example, this family is bringing in fifty seven thousand dollars of Social Security.

And the law is that if you make over, Mary filing jointly, if you make over forty four thousand dollars, eighty five percent of that Social Security income is taxed.

And so for this example, where one is getting fifty seven thousand dollars, eighty five percent of that is forty eight thousand four fifty.

This particular client has an effective tax rate of about seven percent. So if we say forty eight thousand dollars times seven percent, that’s an effective tax on that of about three thousand six hundred and four dollars. So it would be wonderful if we were able to add in and tack on that additional promise.

Then that would be the meet that would be the number.

And that is an exercise we can do for everyone also, is to know what that impact would be if you didn’t get taxed on x y z income. Like, if you have tip income, if you have Social Security income, what does that mean to you, is something we would have to just work up through using our software.

Great. Thanks. That answers that question.

Wonderful. Okay. So we have one more example just to sort of highlight a different scenario, and it’s a little bit more actually, if we can go to the next, slide. Right? This is Peter and Paula, who are fifty and fifty two high wage earners. They are making four hundred and six thousand dollars. And in this example, I’m pretending that they live in a high income tax state, say California or New York, New Jersey, Illinois.

There are others, but I like to pick on those. And Peter and Paula make a good amount of income. They have the standard deduction of thirty four thousand two hundred, and the taxable income is three hundred and seventy one thousand eight hundred. Their tax is seventy five thousand dollars. Their highest marginal bracket is twenty four percent, and they’re effectively paying twenty percent on the income that they’re making.

If TCJA sunsets, you’ll see right away that the deductions that they didn’t get to deduct in TCJA are higher. So they’re able to work off sixty four thousand eight hundred and twelve to sort of bring down what they’re getting taxed on. And with the exemption, you can see that it’s three hundred and twenty five thousand that’s taxable now, not three seventy one, so much lower.

But then Jeremiah showed us earlier how the brackets will go up again. And so they are in a higher tax bracket, and their marginal tax bracket is twenty eight percent, and they’re effectively paying twenty seven percent. And this is a pretty sizable difference, in what they’re paying, seventy five to eighty seven thousand. Now there are winners and losers in this TCJA, sunset.

And in the high income tax states, if that family has bigger deductions, like a bigger home, mortgage interest, more property taxes, they’re paying bigger income taxes, and the higher wage earners, six hundred to a million plus, they often will have much bigger deductions.

And so in that and if if we tack on their charitable or medical deductions, sometimes it can flip the other way. And so there is more energy from these high income tax states to fight the to not be interested in this being, like, to allowing the sunset to happen. So we do have to go through that exercise. This is another way to kind of highlight, sort of the winners and losers in this and which states might be a little bit more interested in this and not.

So before we move on, we’ve got a question about timing when we’re talking about sunset when it all happens. So we’ve talked about that the sunset of the Tax Cuts and Jobs Act, the TCJA, is effective as of December thirty first of twenty twenty five. Correct? So the question is, if the change is as of December thirty first twenty twenty five, when it sunsets, is the first year of impact twenty twenty five, meaning does it apply to the income in twenty twenty five, or is the first year of impact of the changes, assuming that it sunsets, in twenty twenty six, meaning the income tax return the income earned in twenty twenty six?

I will I will provide two the simple answer is it will be the income in twenty twenty six that is impacted.

Now that doesn’t mean that this bonanza that could happen in two thousand twenty five doesn’t realize, or or could result in, not only retroactive, but faster acceleration of change, which could actually help, the the the reconciliation component of passing a lot, which is, like, you know, accelerate these things quicker. But the simple answer to that question is two thousand twenty six.

I think a important nuance, is a lot of things could happen. And maybe I’ll hark this back to two thousand twenty three, two thousand twenty two, two years ago, myself, all of our other great experts that we have here at Mercer Advisors spent the entire year looking every almost almost weekly at the proposed possible changes that could occur, into, throughout the year. And there there was a lot of them. Right? Changes to the to the estate tax code, changes to carried interest, like, things that would changes to long term capital gains, like like, big, big changes that would occur.

And and I will say, none of them happened. Right? None of them actually turned into anything, and that that’s an important thing to consider is what we do know right now, is the law, the tax cuts and job act is going to expire. It is going to expire, on December thirty first of two thousand twenty five. So when we wake up in the morning in two thousand twenty six, the Tax Cuts and Job Act as it sits today will not exist. Now a lot of things could change, between now and then, but one thing is certain is the current setting of the custom job act is not likely to just be, you know, rinse and repeated, restamped, and and extended for a period. So I think that’s an important nuance.

So while while we’re talking about that, Jeremy, just to add on, we’ve got a bunch of questions about, like, what are the possibilities of this being extended and changed? Randy and Jane and Kevin are sending in questions about that. And you mentioned there’s a lot of different ways it could change. Obviously, we know that this means that in order for it to be extended or changed or whatever the provisions are, something needs to be packed passed in in twenty twenty five.

What are your thoughts on I’m not obviously, not asking you for a hard and fast prediction, but what are your thoughts on how it could change, what they might need to do or change in order to adjust or extend this?

It’s a great question and something we’re watching very closely, and we’ll continue to watch. I think a a backdrop to that that’s an important to consider is that basically the the cost of extending the tax cuts and job act, it it’s it’s a little over four trillion dollars. And so in order to extend it, as I mentioned at the very beginning, they need to either increase revenue to to out, to outweigh that or reduce the costs. Right?

So, a lot of the nuance pieces could be, like, the SALT tax stays in effect, the cap, but we just raise it a little bit. But to do that, there needs to be an offset. Right? Whether that’s increasing taxes, pushing costs out of out of the federal government, and to states, you know, as we’ll talk about in a little bit, like deregulation in order to to to expand possible revenue opportunities.

These pieces will happen. One thing I will, likely count on is that any change will likely happen if in the the eve of the hours of the end of two thousand twenty five. And I and I say that because over the last, you know, decade that that I have had the pleasure of watching closely, this tax law, which has now been very, politically charged. You know, every change to that tax law is effectively ruined by Christmas, because it happens the day before Christmas or two days before Christmas as as as as Congress is rushing out, and, they’re pushed up against the wire.

And that means that, you know, our great experts like who Jennifer mentioned, you know, Brian is, you know, up on Christmas Eve, you know, not packing presents, but reading whatever this new iteration of the code is. So I think the good news that you’ll have is that we will be watching it extremely closely, and seeing how the impact of that results in in what financial planning, scenarios, could could affect you, our clients, at an individual basis. What we shouldn’t do is hypothecate and plan accordingly to that, but just kind of plan for that downturn.

That’s great guidance. Thank you.

Mhmm.

So I’m delighted that we’re getting questions about what do we do now and some of the things that are put here. We’ve got Rakesh and Travis that are asking about Roth conversions. And so given that we’re talking about what are the techniques and the timing, like, let’s dive into a bunch of these.

Yeah. And this is the those are right now is the time. Well, actually, between September and October is usually the better time to be thinking about this for tax year twenty twenty four.

But it gives us a little bit of room to run the scenario and know, is there room in lower tax brackets today? Are my tax brackets gonna go up? If so, do we recognize income now when things are lower than when they will be higher in the future? Or maybe if I’m retiring now and I will be in a lower bracket two years from now, then maybe we are deferring income or realizing income later.

And so there is some planning to be done here and opportunities to say, hey. Before AMT kind of comes back, maybe we should look at those incentive stock options to see if there’s something to do there, or maybe I recognize some income, pay the tax on it today through Roth conversions when my tax bill will be lower, and let that money grow tax free in the future. That’s a really popular, wonderful tool, that I love. It doesn’t work out for everyone, but I love doing the math around it to make sure we’ve we’ve looked at it.

Right?

And then and then looking at the future scope and trying to guess where that tax arbitrage lies. And then, the two big things that we can do right now in these last few weeks is tax loss harvesting and tax gain harvesting. Our investment committee is doing that fervently in terms of tax loss harvesting, making sure that we make lemonade out of lemons and making sure that we are booking losses so that in the future, we don’t have to pay the taxes on the gains that we get and they’re offset.

So those are some tips. I I do think that home purchases, if if anybody is thinking about that, it’s a good scenario to run. Like, now with interest rates being higher and, and with with the deductions, it’ll be more meaningful. Like, the bigger the home, like, the bigger the property tax, the bigger the interest, mortgage interest. So some of that can be meaningful in the way that the tax projections work out. So timing those home purchases would be interesting.

I know a lot of people are questioning, like, do I move to another state that might be friendlier to to my situation?

And and and the business owners have a lot of opportunities in terms of business retirement plans and being able to defer income into future years. So those are the things that come to mind who are the bit like, where we have some things we can do move the needle around timing.

Maybe I’ll add something, Jennifer, that is an important nuance. I think all these things are in play now. We don’t have to wait for what might change. Right?

And and I think that’s an important thing to consider with tax. I’m a big believer. I think we are a big believer in, you know, plan for what you know today, not what might happen in the future. And so we know what the tax code is gonna look like right now.

In fact, we kinda to the point in the questions that came in a little earlier, we know what the tax code effectively is going to look like in two thousand twenty five. So do all this planning relative to that. If if Roth conversions are right for you, do it now because you know we we know what the tax regime looks like right now. If, recommending stock, you know, stock options today is an option for you, maybe do it now because we know what the tax code looks like today.

In order to pay or make four trillion dollars be neutral, there’s likely gonna have to be changes, and there’s going to be puts and takes that come with that. We don’t know what those puts and takes are. Right?

And those puts and takes might also result in some pretty big swings, in in impacts, as well. So, again, business owners. We have a a lot of our clients that, you know, they’re already looking at selling a business, and they’re not accelerating selling the business. They’re just already doing it, and they just might be more diligent about ensuring that the business sells in two thousand, say, twenty five when they know what the actual tax code looks like, as opposed to waiting to what it might or might not look like in two thousand twenty six.

So what I heard both of you say is it’s important to do these reviews, talk about the factors, and and even share, hey. I’m thinking about that. I might wanna sell my business in one to two years. Does it matter in my plan?

Or what if I we decide to move? Or we’ve got, something that may be significant in your financial plan to work through those scenarios. There’s a couple people that are asking about what is the timing of when I should do this and what are the reviews are. And so I will say, now is when you wanna talk to your adviser.

Now in an on ongoing basis as we see hear more things that are, coming into fruition and we have more clarity. But to the extent that as Jeremiah mentioned, we know what the rules are now. Like, this is the time to update and share those things as your advisers.

That’s what we love to dig into. That’s where we really, can make a difference in your planning. So we encourage you to reach out. And, Jennifer, now you’re gonna talk about kind of what we can do with the stress testing.

So Yeah.

There are lots of themes right now that we, want to continue to unpack in our financial plan. So if we can go to the next slide, there are the other themes that that we wanna touch on is just the increased tariffs, and mass deportation, deregulation. Those are all things that president-elect Trump really did talk a lot about on the campaign trail. And I am, not saying so I’m a financial planner.

And because of that, I like to make sure we are more secure. I like to make sure that we are planning for the worst and expecting the best. So I am not saying that we’re gonna have these downside risks. I’m saying that the planning has to be focused on the downside.

We’re all gonna be ecstatic if everything outperforms and all the promises come to pass and markets are great, wonderful. But what we want to do with our financial planning is prepare for volatility that comes with any of these proposals and any downsides that may happen. There’s a lot of conversation, and economists do project that if in if the tariffs came to pass in the state that were literally that that was said on the campaign trail, that it would be inflationary. Right?

And if we couple that with mass deportation, that would create higher prices, and that would translate to more to the consumer. And so, I I do wanna do wanna kinda go to the next slide if we could because I wanted to show sort of what we do in a financial plan to know what the impact is to a client. And so every client should have a financial plan where we are looking at the baseline, and here is your situation. But what happens and how sensitive is this to all the threats that that come with it?

And if we have inflation that rises to four percent. So this picture right here is just a sample client where, this person is spending about a hundred and fifty thousand dollars a year. If inflation goes up by one percent, we’d like to Our default is to project inflation at three percent.

But if we raise it to four percent and it stays elevated through the entire duration of the plan, which is highly, highly unlikely, but if it did, the value lost to the lifetime portfolio value of this client is one point eight million dollars. And to that to this client, it really means spending more like one twenty five a year, not one fifty a year. And so there’s a little bit of a meaningful trade off that happens. And to this client, it will be fine. That in threat of inflation is okay. This person is protected. So we don’t have to make big sweeping adjustments to their cash position or their bond position or something more secure or their spending numbers.

But this is different again for every client, and there are those who are a lot more sensitive, to this. Like, people who are within five years of retirement before and after, that is a hot zone. And so differences in returns, differences in inflation, differences in in if you have a prolonged market downturn in those periods, they have a very high impact on the plan differently from having big experiences at the beginning of the plan or at the end of the plan. And so it’s important to kind of use the data, your data, and have the numbers run on what happens if there’s a prolonged market downturn.

What if we have a concentrated position that doesn’t do well in this next four years?

What does that look like? Can I afford to be taking the risk that I’m taking? And, do I wanna move to a different state, job loss, all of these what ifs? We want to know what, what is the impact? Should we be fearful so that we’re not just being led by what the news is telling us to be scared of. We wanna know how does this impact us.

And so, hopefully, this is a good description of what our tools can do and what our advisors can do for our clients.

Very helpful.

And maybe being the, the the the the the tax nerd that I am, I’ll I’ll maybe put a put a a lens on, one of the items we brought up because we might have questions around, like, tariffs were a big thing in the campaign trail. You know, why does that matter as much here, because since since we don’t know what’ll happen.

For those who, already are knowledgeable, this will be a repeat for you with those who are not. You know, a tariff is basically an extra tax that we we put on foreign goods coming over into the United States, and and a lot of times they’re targeted. But it it is a tool that can be used to do a couple of things or maybe a few things. One would be raise government revenue. Others might be, you know, protecting domestic industries from competition. Others could be putting foreign pressures, on other nations.

All of these are actually nuances that we heard in the campaign trail. And and why in my mind does this matter? Because one of the levers that needs to be pulled to make up the four trillion dollar, expensive tax cuts and job act is either raise revenue or reduce cost. The tariffs pull the lever of raising revenue.

Right? Right? Now they have a trickle down effect, but but it is one of the levers that can be pulled to raise revenue, right, for the for the government. And I think that’s an important lens, but it has these, these waterfall components from it or or ripples that come from it that Jennifer pointed out that it could result in these impacts like higher inflation, big impacts on on on your portfolio, through a prolonged market downturn that you need to be able to weather.

Right?

And and we you wanna be aware of those because when you’re making decisions on your spending, you’re making decisions on retirement or or where you’re gonna live, knowing those downtime downside pieces relative to how much stress can your plan, absorb is important.

I yeah.

Yeah. So to that point, oftentimes, when we know that there’s a big expense looming, and when we know what our cash flow looks like, that helps us decide how much to put in bonds, how much to put in secure investments so that we are effectively recession proofing ourselves or making sure that we have the capital to get through downtimes. We there’s no way of knowing the tariffs how yet how much is gonna be applied to which country, which goods, whether the and how those countries will react. And, like, we don’t know geopolitically what might happen, what might happen in the economy. So what we do wanna be prepared for is any of those events at any time, whether regardless of whether it’s this administration or another.

We shouldn’t be investing just solely in stocks and taking a ton of risk if we can’t afford to do it. Right? And so we want to make sure that the advisers are very well aware of what the cash flow looks like so that we can construct the portfolio to match that.

I think that’s a great transition. We’re gonna talk a little bit about, on the next slide, Jeremiah.

Yes. What’s next?

Now we’ve got a lot of questions about portfolios, and what does the history tell us? I particularly, Bam and Kevin are saying what has happened and kind of, let’s talk about what is, a portfolio recommendation. And I I know that that both of you have strong opinions on, the optimal portfolio.

Well, the optimal portfolio is the one that we could stay invested in. Right? So we want to make sure that we can get get be there when the market performs to its expectations. And in order to recognize that, we need to be in it.

And it’s also the best, it’s the best hedge against inflation, is to be in the companies that are rising and benefiting from the increased cost of goods. And so the market, you can see here in this slide, over, gosh, over the last twenty two administrations, it’s only been down four times. That the stock market is incredibly resilient, whether it’s red or blue. It is, you know, I have it it is incredibly resilient.

If we had invested a hundred thousand dollars in twenty thirteen and only invested when Democrats were in office, then that hundred thousand dollars would turn into one hundred and seventy two thousand.

And if we invested only when Republicans were in office, then it would be a hundred and eighty one thousand dollars. But if we had invested the entire time, then it’s three hundred and eleven thousand dollars. Like, it’s hard sometimes, but we can’t let our personal politics interfere with the financial plan and the portfolio construction. That being in the market, the market is incredibly resilient is what I wanna say.

You gotta stay in it, I guess, is the big takeaway. Right? And and you wanna make sure that you’re you’re not pulling in and out of the of the market as a reaction to this, but more importantly, being forced to maybe do it, I think, is a is a big takeaway as well.

Right, Jennifer?

Absolutely. And so I wanna reiterate just something Don Calcagney likes to say that the markets perform over time.

And and as, you know, a financial planning person, I can’t emphasize enough that our plans need to survive over time, that we can’t get sunk by an extreme event that happens in the middle. That’s why we get paid to invest and stay and to be investing and to take risks.

That’s the reward, right, to be able to get through a lot of the down the risk the downside risk.

Well, I’m looking at a lot of questions here. So if you’re open to taking some more questions here as we talk about, certainly, there’s several questions asking about how do we get in touch with you and run through our our plans. And so I will again encourage you to, talk to your adviser, stress test your particular scenario. Keep in mind that your personal financial situation is the only one that matters to you.

But I will say there’s a lot of questions here still about Social Security. So we talked a little bit about the taxation of Social Security and what those proposals will be.

But maybe can you talk a little bit about do any of these changes to taxation or maybe your own personal, income tax situation, does that affect what age you decide to take Social Security, and how do we help our clients plan for that?

Great question. With Social Security, we do have tools, and we will go we we we do calculate sort of all the pros and cons of of when to file and when to collect. Do we get it at full retirement age? Do we wait to get that extra bump? Because the longer you wait to take it up to age seventy, the bigger the benefit.

And, you know, there’s a lot of factors. What’s gonna happen in policy, I don’t feel like is that as meaningful as knowing when we’re gonna die. That is helpful. Also, knowing when we are. So and then how much we have in reserve to be able to wait. And, so we do do custom calculations to kind of look at what happens if we do it at this point, what happens if it where is the crossover point? If we do it early, we collect more now when we have certainty of it coming in.

Others who have longer life expectancies often have it’s a winning combination to wait as long as possible if people have the reserves to be able to live on other money until that point.

So, yes, that’s gonna be a custom calculation, but I don’t think impacted by what’s happening right now.

That’s great.

Great to know, Jennifer. So, Jeremiah, we’ve got a a bunch of questions about we talked about tax cuts and jobs acts and income tax, and we briefly talked a little bit about the estate tax. So there was I read it this morning as well. We’ve got a question here from Randall that the New York Times morning newsletter this morning talked about federal estate tax and the loopholes and how that changes. So what’s your view on will the estate tax change if Tax Cuts and Jobs Act, you know, is extended or maybe kind of guidance on your thinking being in and out of that world all the time on the best advice for our clients?

Absolutely. It’s it’s it’s a good question, one which, sits top of mind for me often as you noticed, noted. I will say, you know, that the the estate and tax, state and gift tax, it it is a separate part of the code from the income tax code as we talked about earlier.

But, it often gets lumped in for two reasons. One, it is it is one where from a Republican perspective, generally, there’s a lot of energy around, like, raising it and not having this extra excise tax. Right?

The and on on the flip side of that is also it’s an easy lever to pull because it doesn’t affect people when they’re alive. There’s this this notion that it affects people when they pass away, so it it’s less of a campaign charged topic. But what I will say is is two things. One, it a hundred percent could happen separate. Right? It doesn’t have to be lumped into the tax cuts job act.

And in fact, that, the other component is it has been a topic every year, since two thousand, four, when when the first kind of big changes happened to the to the estate tax. They started increasing dramatically through the through the through the Bush era.

And since then, it has been a topic, regardless of who, is in the office about whether it needs to go up or down. In fact, it actually was eliminated at one point in two thousand ten. It expired in two thousand twelve and was brought back retroactively in two thousand thirteen. So there was a lot of moving pieces here, but it it is often one that, does get a lot of attention.

I do expect it to change, but I don’t know. I can’t tell you if it’s gonna go up or down. Right?

But, you know, given who currently controls Congress, it is there could be a slight tilt towards it staying where it’s at and continuing to inflation adjust upwards, or, even go up a little higher. Again, the problem you’re gonna have is against the budget. People passing away as happens regularly. You know, we’re we’re looking at trillions of dollars of assets passing to the next generation over the coming decades, and that has an impact on the budget. And, again, we I keep coming back to this. If the tax cuts and job act were to be extended, we have this four trillion dollar bogey that needs to be filled.

The the estate taxes I’m not gonna call it an easy one, but one that has less political charge to it, because someone a lot of people say it doesn’t matter to me because I’m gone. Right? Now I would say a lot of our clients have the flip side as well that say it does matter to me because I care how much I pass to my kids.

And that’s why doing things like Roth conversions are great, towards one end of one’s life if it makes sense because you can basically create a tax free bucket, for somebody to inherit the money even though it doesn’t appoint state tax. It’ll it’ll it eliminates that uncertainty around the income tax side. So the the big takeaway there is you do need a plan for it. The good news is we have a whole team at Mercer, both on the tax and the state side to help our clients navigate that on a daily basis.

But maybe more importantly is that if you think you wanna make a change, planning now is critical.

If you if you wait until this time next year and we do see that there’s going to be a change maybe negatively to the estate and gift tax, it will be far too late. And and I would say if you want to make any gifting, create any structures that take advantage of what I think, one of the individuals Randall mentioned, like, the loopholes, if you may, is you need to you need to plan for that in the first quarter of two thousand twenty five. And I would say the early part of the first quarter of two thousand twenty five. That doesn’t mean you’re done with it, but you’re thinking about it.

You’re thinking about what options there are because, one, it takes time to put them in place. And two, the the biggest hurdle that we see with clients is the psychological impact of what it means to gift and how does it look and how does it work. And that could take months to get through. So you need to be thinking about these things now.

Yeah. That’s great advice.

Not only the timing of it, but taking the time to plan it correctly and getting started sooner than later if that’s something that’s, applicable for your personal situation.

But just on on our last few questions here, we we talked briefly about Roth IRAs, and I I see a couple of questions here, more just about can you talk again about, does it still make sense if we think that there may be some changes in in the tax code, to convert a traditional IRA to a Roth IRA. And maybe, Jennifer, you can talk about, like, what are what are the things that those are the types of clients that that might make the most sense for?

Sure.

I love Roth IRAs because it’s a win win for both the government and for the investor oftentimes. The government gets to get the taxes on that money today on assets that usually are deferred for over long periods of time. So then they get to collect that tax revenue today. And then the investor and the client gets to have tax free growth, which is tremendous.

I mean, what how many things do we have that are tax free? This is great. Right? So if we can get it, I will I I highly encourage Roth IRAs for those who are in lower tax brackets today and expect higher brackets tomorrow.

So that’s a critical thing to know. And then another so people are young also. I think those who are young making who will probably be making more money in the future, Roth away. Like, just I think that’s a it costs very little today, and it will grow into something big, and they’ll have lots and lots of time to to have that money grow.

And the amount of tax that they paid will get will pay off tenfold. And so the longer they keep it in there, the better. I typically see a crossover point at around fifteen years that it if you do a conversion, you’re not really winning because you still have to pay taxes, and you’re paying you’re prepaying those taxes. And, like, that point is around fifteen years.

So sometimes for first generation to do this, it’s really for the second generation who’s gonna see the benefit of that. It’s the inheritors who are gonna really benefit, or it’s going to be those who have money that’s not going to be used for the next fifteen years, and they’ll really benefit. So, hopefully, that gives you enough kind of ammo to know, like, which client should be looking at this.

Yeah. I think that’s very helpful. And and, again, this is one of those situations that if you think that you may be in in those situations that the power of being able to do that scenario planning and working with your adviser with your own actual numbers and assets, is really critically important.

So, the other thing to share, and I I know that we mentioned that the the new tax brackets for twenty twenty five and all of those tax details are out. So we do have summaries and can share, twenty twenty five tax brackets, what you can contribute to an IRA, where the phase outs are, the tax incentives, the required minimum distribution, calculation tables, the estate gift and tax, limitations, a health savings account, all of those sort of, like, key figures for taxes, we can certainly share with you. Please ask your adviser if you’re interested in getting those details, go over them what applies in your situation or not. And then last but not least, since we certainly have a lot of questions related to the market outlook and portfolios, we do have our next quarterly market outlook scheduled for January twenty second with our chief investment officer, Don Calcagney.

So certainly keep an eye out for the link to that presentation.

But in the meantime, there is commentary from Don Calcagney, on our website. So if you go to the mercer advisors dot com website and look in our insights section under market commentary, there are specific articles related to to the market response to the election from Don that we would invite you to share.

Also found on our website, will be the recording of this particular presentation. Usually takes about three business days for us to post that, but it will be available for viewing if you want to do that. And we will also be recording if we didn’t get to all of your questions as we’re right out of time here. We have recorded those for those that we have your names, to be able to forward those and ask your adviser to get back with you so that we can make sure that your particular question, is answered as well. So keep an eye out for your email letting you know when when this recording is available. We thank you all so much for joining us today. We hope that you found this helpful, and we appreciate your attendance.

Thank you.

Thank you.