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A man entered the New York Stock Exchange on Wall Street in New York City on Friday.
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Angela Weiss/AFP via Getty Images
A man entered the New York Stock Exchange on Wall Street in New York City on Friday.
Angela Weiss/AFP via Getty Images
President Biden is scheduled to meet with congressional leaders this week on the debt ceiling, with about two weeks left before the country runs out of money to pay off its debt.
Economists and administration officials have warned that a potential default on U.S. debt for the first time in history would amount to a financial catastrophe that would wreak havoc on the domestic economy and disrupt global markets.
![What you need to know about the upcoming debt ceiling](https://media.npr.org/assets/img/2023/05/12/ap23115848609259-edit_sq-8c7cd9179bc763bd0bd7890ad0596525e6cda28f-s100-c15.jpg)
“Our economy is going to be in deep recession.” Biden told reporters. last week. “It will cripple retirement accounts and increase borrowing costs. According to Moody’s: about 8 million Americans they will lose their jobs. And our international reputation would be severely damaged. ”
Biden expressed confidence over the weekend that leaders would reach a deal by June 1, but he has yet to say what his administration will choose if that doesn’t happen.
Americans receiving payments directly from the federal government or federally funded programs such as Social Security, Military and Veterans Benefits, Housing Assistance, and Food Stamps will be the first to feel default, says Samantha. Sanders, Director of Advocacy for Government Affairs, said: Economic Policy Institute.
![Yellen has warned of](https://media.npr.org/assets/img/2023/05/08/gettyimages-1483917268_sq-b7eba6b96d2a5e78eaf872231ece5aa124a2d072-s100-c15.jpg)
And, as she told NPR, weekend version sundaythe economic effect will ripple outward from there.
Low- and middle-income people may struggle to pay bills and cut spending. The Treasury could delay payments, disrupt financial markets, and blow away household wealth. And interest rates, such as those on mortgages and credit cards, could rise.
“It may sound a little depressing, but honestly there’s very little an ordinary person can do to prepare for a financial crisis of this magnitude,” Sanders said, noting that the most productive thing people can do right now is to urged Congress to agree on a clean debt ceiling, which it added was a lobbying effort by the U.S.
![The dispute over the debt ceiling could cool the economy.this is how we got here](https://media.npr.org/assets/img/2023/03/21/ap21279839786304_sq-b487a39796d45edf32a71d6dc448379f7ee2aca7-s100-c15.jpg)
And what exactly does the debt ceiling have to do with retirement planning? morning paperA. Martinez of , asked Joel Dixon, global head of advice methodologies at investment firm Vanguard.
Dixon said it was clear that the threat of default was approaching, and if it materialized, market volatility would rise.
“But whether that volatility will actually manifest itself in lower or higher returns at any point in time is really not in the control of the investor and is very difficult to predict,” he says.
Some experts are trying to point this out further. In one paper, the center-left think tank The Third Way said: December report A typical retired worker with 401(k) savings could lose $20,000 if the U.S. defaults on its debt, he said.
Remember that retirement savings are for the long term
But Dixon stresses that retirement savings is a long-term game, and temporary disruptions are unlikely to have long-term effects on savings.
And while the average investor can’t necessarily decide what happens in the market or in the debt ceiling conflict, he can avoid putting all the eggs in one basket.
“The best way for an investor to achieve their own success is to focus on the things they can control: saving regularly, avoiding wasted costs and taxes, achieving their goals. It’s about knowing what you need to do,” says Dixon. “Sticking to that plan and controlling what you can do is the best way to succeed.”
![How to save money for retirement](https://media.npr.org/assets/img/2020/10/04/cpornea-npr-retirement101_sq-3432cbbeb81d3e9876ff9d815bd764c90e71eab9-s100-c15.jpg)
Dixon said there are a few other issues to consider if he was planning to retire sooner, as he did this year. If defaults occur and government payments are delayed, it will affect the cash flow you are accustomed to receiving and, in a way, the income you are accustomed to.
“There we talk about the importance [of] “You need to be prepared for the unexpected. Think rainy day funds, backup plans, etc.,” Dixon said, referring to people’s overall investment plans.
The same idea applies to people who are already retired, he added. This is because these accounts are by their nature used to pay for daily expenses and annual living expenses.
“But during periods of inflation or when the market is down, people may have a different mindset about withdrawing their accounts,” he added. “It’s about taking a sufficiently diverse approach to spending, when to spend, and how to save over the long term, and breaking it down.”
The broadcast interview was produced by Shelby Hawkins and Taylor Haney.