President Trump began his second term just five months ago, but his sweeping policies have already had a significant impact on the stock market and economy. After introducing worldwide tariffs on April 2nd, the stock market cratered by more than ten percent, leading the president to reverse course and delay tariffs on every country except China, where he raised tariffs further.
Beyond the stock market volatility, Elon Musk’s Department of Government Efficiency has cut many government programs to the bone, including the Social Security Administration and the Internal Revenue Service. These moves could help reduce costs but risk introducing instability to key retirement services.
Let’s look at how these changes could impact your retirement savings and steps you can take to mitigate risks.
1. Higher Inflation and Recession Risks
The Federal Reserve warned that “the risks of higher unemployment and higher inflation have risen” in their most recent May 2025 meeting, where they kept interest rates steady. If these risks materialize (they haven’t yet), they could put the economy in a precarious situation known as “stagflation,” which is characterized by a combination of higher inflation and slower economic growth.
Inflation remains steady for the moment, but tariff-related uncertainty could send rates higher. Source: TradingEconomics
The 1970s provide a case study of what could happen. Back then, loose monetary policy and oil shocks led to higher inflation and slower economic growth, or stagflation. Fixed-income investors saw their real spending power fall while rising interest rates led to a collapse in bond prices. While stocks didn’t crash in nominal terms, their inflation-adjusted values were cut by more than half.
The fix for stagflation came from Paul Volcker’s Federal Reserve, which raised interest rates to over 20% in the early 1980s to quell inflation. While this caused a severe recession, the short-term pain eventually subsided, prices stabilized, and the economy normalized, going into the dot-com era.
The best way to mitigate risk is to diversify into real estate, commodities, and inflation-protected assets. For instance, gold prices rose from $35 an ounce to $800 an ounce between 1970 and 1980. Unlike in the 1970s, real estate is more accessible to investors seeking to diversify beyond stocks and bonds.
2. Lower Tax Rates Across the Board
The Tax Cuts & Jobs Act of 2017 cut the top corporate tax rate from 35% to 21%, doubled the standard deduction for individuals, and lowered marginal rates for most tax brackets. While the corporate tax cuts were made permanent by the legislation, the individual income tax changes expire at the end of this year unless they are extended by Congress, a top priority for the Trump administration.
If the Trump administration extends these tax cuts, they could provide a tailwind to retirement savers and investors for several more years. Lower tax rates increase after-tax returns on retirement accounts — especially for high earners — while providing more room for Roth conversions and tax-efficient withdrawal strategies. And this results in more money in your pocket.
The caveat is that these tax cuts reduced tax receipts and could add an estimated $1.9 trillion to the deficit over ten years. If the government struggles to sell bonds in the future due to its debt, the result could be higher interest rates and inflation or higher taxes to increase revenue. In addition, the top one percent received about 20% of the total tax cut benefit, meaning not everyone benefits the same.
The best way to capitalize on these lower tax rates is to discuss the retirement strategies with your financial advisor. For instance, Roth conversions can help you lower your future tax obligations, while more tax-efficient withdrawal strategies can help reduce current tax bills for retirees.
3. Changes to Social Security
The Social Security program enjoys strong bipartisan support, including support from the Trump administration. In March 2025, the president vowed that he “will not cut Social Security” but instead focus on eliminating “fraud and waste” in the entitlement program. This means that retirees can continue to rely on receiving their Social Security checks.
President Trump also proposed ending taxes on Social Security benefits, which could increase after-tax income for millions of retirees. Depending on income, approximately 85% of benefits are subject to taxes under the current law, and high earners, especially, could face large tax bills on this income.
While these are net-positive for retirees, the administration’s significant reductions in employee headcount and closure of dozens of offices could translate to longer wait times and delays. At the same time, any cuts to taxes on social security benefits could further weaken the program’s already-precarious financial situation, resulting in potential cuts sooner than expected.
For now, retirees may still want to heed the advice of delaying benefits to lock in larger lifetime benefits, despite the increased uncertainty. But, at the same time, younger retirement savers may want to adjust their expectations for Social Security income to perhaps 70% or 80% of the program’s currently planned benefit to account for future cuts that may be necessary.
The Bottom Line
President Trump could have a significant impact on retirement savings, from the positives of lower taxes to the negatives of higher inflation. But ultimately, financial advisors recommend staying the course and continuing to execute on a plan (even if it’s slightly modified) rather than reacting to short-term news or making rash decisions.
