President Trump’s Budget for Fiscal Year 2021

Tips for budgeting during your retirement years, without Congressional help

President Trump unveiled a $4.8 trillion budget for fiscal year 2021 and one of his main goals is to balance the budget in 15 years. While you can read the President’s budget proposal at whitehouse.gov, here is a good summary, taken from the Budget Message of the President:

“To ensure this economic strength continues, I have called on the Government to reduce wasteful, unnecessary spending, and to fix mismanagement and redundancy across agencies. This includes prioritizing spending for programs that are a core function of the United States Government.”

Key Priorities

The following are the key priorities of the Trump Administration, lifted directly from the President’s message to Congress (and edited from the more than 130 pages of content):

Better Trade Deals. “Renegotiated or new trade deals with Canada and Mexico, China, South Korea, and Japan as well as developing deals with the United Kingdom, the European Union and other countries that desire access to the coveted American market.”

Preserving Peace through Strength. “To sustain security at home and promote American interests abroad, my Budget requests $740.5 billion for national defense.”

Overcoming the Opioid Crisis. “For the duration of my Presidency, I will continue to promote policies that will beat back this deadly crisis and promote job training and employment opportunities for Americans who are rebuilding their lives after struggling with addiction.”

Regulation Relief. “Our commitment to regulatory reform stems from the simple truth that the vast majority of business owners want to do the right thing, comply with the law, and treat their workers fairly.”

American Energy Independence. “The United States is now on track to be a net exporter of crude oil and natural gas for all of 2020, a major milestone not achieved in nearly 70 years. In addition to being the world’s largest natural gas producer, we also became the world’s top crude oil producer in 2018.”

Let the Bickering Begin…
Now that President Trump has submitted his Budget request, the next step is for Congress to hold hearings where they will question Administration officials in order to create their own budget plan, called a “budget resolution.” During this time, you can bet that there will be a lot of bickering in Congress and the media. In fact, shortly after Trump’s budget was released, Senate Budget Chairman Mike Enzi said he will not hold a hearing, warning that it will turn into a “diatribe against the president.”

Budgets are Tough Things to Do

If you think creating a budget for the Federal government is tough, try creating a retirement budget for yourself and your family. Here is what you will likely find: budgeting for retirement will leave you in shock.

What you will need is often more than they think. Higher-than-expected inflation and psychological barriers to cutting spending are the main culprits.

The reality is, budgets are tough things to do. There are fixed costs – things you have to have like utilities, food and even cable TV – and there are one-time expenses. The latter is usually bigger chunks, such as replacing cars, patching roofs and going on vacation. You can put off some one-time outlays, like a vacation, but not others: for instance, installing a new furnace in mid-winter after the old one died.

The federal government is about to show us how difficult budgeting can be. Fortunately, a normal household doesn’t have to deal with these large numbers, and you can vote to make changes when necessary if a shortfall looms. Your discussion with your family about what to cut likely won’t result in a household shutdown based on the discussing. Yet as with Congress, outside forces complicate your planning.

Here are three factors to take into account when budgeting for retirement:

#1: The 70% Myth

Don’t believe the old advice that you need just 70% of your working income when you retire. True, some expenses are gone or whittled down by then, like mortgage payments. Still, think about trips and other leisure pursuits you want to do as a retiree, when you will have the time. Those costs mount up. Plus, medical expenses expand as Medicare pays for only about half of your health-care tab.

#2: Inflation Allowances

Certainly, the Consumer Price Index is relatively tame nowadays, with inflation hovering consistently around
2% in recent years. Inflation, though, is constant and relentless over the long-term, and this cannot be ignored. Most financial advisors will suggest caution and encourage you to use a 2.5% to 3.5% annual increase in most of your fixed expenses.

#3: Making Spending Cutbacks

One major mistake pre-retirees make is that they say to themselves: “We will stop this expense or reduce that cost at retirement.” Bad plan. This is not how you want to begin retirement, but it does provide confidence during the planning stages. But it is false confidence that makes you feel better today at the expense of reality.

If you go on a diet to achieve a weight goal – dieting is very similar to reducing expenses – you can give up chocolate or something else that you love in order to succeed. The discipline works and you hit the goal. Yet can you live without chocolate forever? That’s not so easy.

People try to convince themselves that at retirement they will go from good wine to box wine, or buy used cars rather than new cars. One favorite is that they will give up cable TV or at least the movie packages upon leaving the work force. These may sound like plausible ideas and make the numbers work on paper, but they are simply not realistic for happy transitioning into the next phase of your life.

Creating an accurate budget is challenging and perhaps even as difficult as following one. To better understand your future, your chance of success, you need to know the numbers and be realistic in your assessment of what you want and need. Use your financial advisor as a sounding board.

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