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Debt Ceiling Explained: What You Need to Know

Debt Ceiling Explained: What You Need to Know Fitzwilliams Financial

Basics of the Debt Ceiling

The national debt ceiling pertains to the maximum amount of funds the US Government can borrow to cover its expenditures. These expenses include various items such as military salaries and purchases, tax refunds, Social Security and Medicare benefits, and interest payments on any outstanding debt. The country currently operates with a budget deficit, which means that its expenditure exceeds its earnings. Thus, the government is obliged to borrow from other nations to cover its expenses.[1]

The nation has a limit on the amount of money it can borrow, known as the debt ceiling. Although it can be increased by Congress, political and budget disagreements in Congress can make it challenging to come to agreements.[2]

How Does the Debt Ceiling Affect You?

If the United States hits the debt ceiling and is unable to borrow more money, it will default on its loans. This, in turn, would lead to a series of severe consequences for consumers, which include:

  1. A delay in federal benefits, such as Medicare and Social Security payouts.[3]
  2. A pay freeze for military personnel and individuals employed in government-funded jobs.[4]
  3. A recession could occur that could lead to job cuts and widespread unemployment.[5]
  4. A surge in interest rates. In the same way someone gets a higher interest rate if they are less credit-worthy, the US Treasuries would need to increase their interest rates to entice more buyers of the debt. Remember, Treasury bond interest rates are often connected via market forces to the average person’s interest rates on home loans, business loans, and credit cards. Therefore, even the average American may experience an increase in costs of debt if the country’s budget were to default.[6]

What Should You Do?

If you’re looking for ways to safeguard your finances in case of an economic downturn, consulting a financial expert is a smart move. A financial advisor can assist you in sorting out your finances, assessing potential risks, and keeping tabs on the current economic climate, helping you gut-check your decision-making. For a complimentary assessment of your financial situation, get in touch with one of our specialists today.

 

Sources:
[1-6] https://www.cnbc.com/2023/05/04/what-is-the-debt-ceiling-why-its-important-and-how-it-affects-you.html

When people think about retirement planning, they often focus on one question: How much money will I need?

I believe another question can be just as important: What will that money be able to buy?

Inflation can gradually change the cost of groceries, housing, healthcare, transportation, travel, and many of the other expenses people may encounter throughout retirement. As those costs change, the purchasing power of a dollar may change with them.

That is why retirement planning can involve more than building an account balance or reaching a particular savings target. A comprehensive financial plan may also need to consider future

spending, retirement income needs, time horizon, inflation, investment strategy, and how someone’s financial circumstances could evolve over time.

In this Financial Forecast discussion, I explore how inflation can affect everyday expenses and why purchasing power may matter when evaluating a long-term retirement strategy. I also discuss why investors may benefit from looking at their financial decisions within the broader context of their goals rather than focusing on any one economic factor in isolation.

No one can know exactly what prices, markets, or economic conditions will look like years from now. Planning can instead involve evaluating different possibilities and building a strategy that may be able to adapt as circumstances change.

Watch the video to learn more about how inflation and changing expenses can fit into the retirement planning conversation.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment advisor. FWM and Fitzwilliams Financial are affiliated companies. The content in this video is for informational purposes only and is not personalized investment advice or a solicitation to buy or sell any security. We do not provide tax or legal advice. Media appearances are for informational purposes only and do not constitute an endorsement. Investing involves risk.
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