debt-limit-and-bank-crisis

My Take on the Debt Limit and Bank Crisis

When we set up Your Merkle Plan, we talked about legislative risk – how what happens in Washington can impact your plan in good and bad ways. A few months ago, we passed along the latest retirement law changes in SECURE Act 2.0. This massive legislation had 90 retirement provisions, including changing the RMD age from 72 to 73, decreasing RMD penalties, and increasing the amount you can contribute to some retirement accounts. Generally, most of these provisions make sense and give you more control over your retirement savings.  

I was a vocal critic of the first SECURE Act that went into effect on January 1st, 2020, because it eliminated the stretch IRA and replaced it with the 10-year rule. Instead of being able to stretch distributions over a lifetime, those inheriting an IRA from someone other than their spouse now have to take the money out within ten years. When this law passed, we talked to many of you about how this might impact your beneficiaries. Some of you chose to implement an IRA relocation strategy and the ability to see more money go to your loved ones and less to taxes.  
 

I take you on this walk down memory lane to remind us that there is always something going on in Congress that could impact your retirement. The latest buzz surrounds the debt limit. I think it’s unlikely that the U.S. will default on its debt. Aside from that, several outcomes are on the table, including increasing the debt ceiling limit and making sweeping changes to the budget. These budget changes could include program cuts or generating more revenue (aka raising taxes).  
 

According to the Center for Budget and Policy Priorities, Social Security, health insurance, and defense comprise the three major federal spending areas. In 2022, about 21% of the budget paid for Social Security, including monthly retirement benefits for about 49 million retired workers. Four health insurance programs – Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and Affordable Care Act (ACA) accounted for about 25% of the budget in 2022, or $1.4 trillion. Half of this amount goes to Medicare which provides health coverage to around 80 million people age 65 or older.  

Unsurprisingly, the debt ceiling includes talk about cuts to Social Security and Medicare. I’ve always felt like any lawmaker would be crazy to run on the platform of cutting Medicare or Social Security for baby boomers when we know that voter turnout is highest among those who are already using those services or soon will be. Still, I do think Medicare and Social Security reform are on the table – every year.   

It’s more likely Congress will raise taxes, another one of the risks we talked about when we set up Your Merkle Plan. Taxes are currently at historic lows, with the top tax bracket at 37%. It was just 42 years ago when the top bracket was 70%. That’s why we’ve discussed the possibility of increasing taxes and included a long-term tax strategy in Your Merkle Plan.  
 

Last month three U.S. banks failed, lawmakers took emergency action, and there were more central bank rate hikes. Bank failures are common. Since 2001, there have been 563 bank failures. They don’t typically garner the news that the bank failures of 2023 have. The latest bank failures don’t feel like the start of another 2008, but there could still be some aftershocks as some call for enhancing the FDIC’s deposit insurance and tightening bank regulations.  

The markets will surely react to these changes, adding to the potential for volatility.

History has taught us that something is always “threatening” the economy. It’s good to be aware of these things, but that awareness doesn’t have to be accompanied by worry. Your Merkle Plan was built with risk and market volatility in mind, and it will continue to withstand the next thing that comes your way.  


Sources: Center on Budget and Policy Priorities and FDIC.gov

Navigating Retirement | A Couple’s $12 Million Lesson

April 7th, 2024

Discover how to navigate the complexities of retirement planning with Retirement Planners Loren […]

Read More

Retirement Planning | Why It’s Not an Easy Set It and Forget It Scenario

March 31st, 2024

We look at why you can’t simply “set it and forget it” when […]

Read More

Navigating Your Financial Future When Your Advisor Retires

March 24th, 2024

Navigating the transition when your financial advisor is heading into retirement can be […]

Read More

Essential Legacy Planning Documents for a Secure Retirement

March 17th, 2024

Retirement Planner Loren Merkle discusses the critical topic of legacy planning and retirement. […]

Read More

Understanding Retirement Income Strategies | A Mindset Shift

March 3rd, 2024

CERTIFIED FINANCIAL PLANNER™ Loren Merkle discusses the crucial mindset shifts needed when rethinking […]

Read More

Retire Before 65 by Rethinking Your Health Care Options

February 25th, 2024

Reclaim your Go-Go years! In this episode of Retiring Today, we’ll be discussing […]

Read More

How to Build Your Investment Portfolio for Retirement

February 18th, 2024

CERTIFIED FINANCIAL PLANNERTM Loren Merkle discusses the important investment mindset shift needed for retirement […]

Read More

Understanding Taxes in Retirement

February 11th, 2024

In this episode of Retiring Today, Loren Merkle and Chawn Honkomp discuss the […]

Read More

3 Ways to Overcome The Fear of Running Out of Money in Retirement

February 4th, 2024

In this episode of Retiring Today with Loren Merkle, we discuss three practical […]

Read More

Ready to take your retirement to the next level?

Let's chat! Schedule a RetireReady Call to talk with a retirement planner about your retirement vision.

Ready to take your retirement to the next level?

Let's chat! Schedule a RetireReady Call to talk with a retirement planner about your retirement vision.

Call Now Button