By Matthew Malone
NEW YORK (TheStreet) -- Between all the debating, advertising and robocalls, it can be difficult to focus on the many everyday parts of life that will be affected by a Romney presidency or Obama re-election. When it comes to finances, for most of us "Big Bird" and "big government" are less important than the things, big and small, that will influence the way we spend and save.
Retirement planning, of course, is among the most important elements of a sound financial plan, so it's critical to understand how the incoming administration's policies will make that more or less secure.
Here are the five most important ways the election can make our golden years more -- or less -- so.
Tax policy is among the most uncertain outcome to the election. Democratic President Barack Obama hopes to keep the Bush-era tax cuts intact for all but the nation's top earners and raise revenue by closing loopholes. Republican challenger Mitt Romney wants to keep all the cuts intact but reduce deductions and loopholes to raise overall tax revenue. The good news: Neither candidate's plans are likely to affect the ability to deduct traditional IRA contributions from your taxes (Roth IRAs are funded with "after-tax" money). The candidates have generally talked about itemized deductions, and IRA contributions aren't among them.
2. Government spending and deficits
Talking deficits is complicated. There are many "levers" that affect a deficit, for better and worse. Both candidates have pledged to pay down the deficit significantly during their terms. To the extent they do so, it's a likely positive, but there's a big caveat. The big risk in cutting back on government spending is that it fills a hole left by the drop in private spending that follows a recession and slow recovery. Cut too much before U.S. households recover and there's greater risk of slower growth and, ultimately, another recession. The ripple effects of that scenario -- lower incomes, lower returns on investment, etc. -- are bad news for your retirement portfolio.
3. Health care
The effects of Obama's health care reform are far from clear, and if Romney is elected, it's possible we might not know. One thing is certain: U.S. spending on health care is likely to outpace inflation for the foreseeable future. As such, it will eat up a greater percentage of our disposable income, leaving less for retirement contributions and, if you're already retired, less to spend on other essentials. Either administration is unlikely to change the course of health care spending, at least in the next decade. That means it will take even more financial effort to keep your retirement account growing, without taking away from other necessary spending.
4. Social Security
Social Security's viability should be of concern for any American who expects to live long enough to use it (let's hope that's all of us!). At best, Social Security is a great supplement to existing retirement savings; at worst, it's all an older American has to live on. Unfortunately, the worker-per-retiree dynamics are trending in the wrong direction, and in the coming decades the surplus of funds in the system will be depleted. There are several "solutions" -- raising the retirement age, reducing benefits, raising taxes, privatization -- that have been bounced around during the campaigns, but neither administration's approach is clear. But it's hard to imagine Social Security changing fundamentally. The good thing: Even with fewer workers supporting more retirees, estimates say that we'd still be able to pay 80% of current benefits. That's not as good as 100%, but it sure beats zero.
5. Investment choices and performance
The quality of IRA investments is more a product than a direct result of government policy. But if you follow sound advice and create a diversified portfolio, you'll generally be exposed to the performance of the broad economy. And that, of course, is the great open question. When pulling the levers, many of us will be doing so on the basis of which candidate will do the best job of restoring our economy to health. Choose wisely: Your retirement savings, and many other things, hang in the balance.
Matthew Malone is managing editor of RothIRA.com, where he is part of a team of editors, writers and technology experts aiming to explain and simplify the complicated world of retirement savings.
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