Home Personal Finance Debt ceiling showdown has seniors, investors panicking

Debt ceiling showdown has seniors, investors panicking

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People fear that the debt ceiling showdown will cost them financially.

And they are right to be wary. Republicans are putting the country into default and risking disrupting the global economy.

Jana Hutchins of Tempe, Arizona said, “At this point, I’m more worried about the debt ceiling not being raised. I’ve been retired for about a year and a half. I’m living off my life’s savings. I’m afraid it will be wiped out or so severely diminished that it will take longer to recover than I have.

White House warns debt ceiling breach could cost 8 million jobs

The debt ceiling limits the amount the federal government can borrow to pay bills. And while it is a serious concern that governments are spending more than they receive, this latest dispute concerns spending that has already been approved.

Kristin Benz, Director of Personal Finance and Retirement Planning at Morningstar, said: “But we have been here before, in 2011, and at least that time Congress was able to reach an agreement to raise the debt ceiling at 11. I think it is unlikely that Congress will not do so this time. But anything is possible, especially with the extreme polarization in Washington right now.”

Consumer confidence is important now as the Federal Reserve (Fed) is still battling inflation and there are concerns over the possibility of an upcoming recession. Then there were the epic failures of some major banks.

See how the national debt ballooned to $31 trillion

A survey found that nearly half of Americans are worried about the safety of their money in banks and other financial institutions. Gallup poll It took place in April, the month after Silicon Valley Bank and Signature Bank failed.

I wrote about this issue earlier this year and thought it important to address the anxiety people are feeling now that deal deadlines are looming. I asked him how he felt about the cap crisis.

“It is no exaggeration to say that we are stressed by the dire prospects,” wrote a disabled veteran of Indianapolis.

What is the debt ceiling and what happens if the US hits the ceiling?

Jeff Leonhart, a retired public school teacher in Michigan, wrote: I am concerned and angry that the public has to endure the antics of those who supposedly work for us. ”

For many consumers, political grandstands make no economic sense.

Scott Helmers of Spirit Lake, Iowa, writes: But more than that, I worry about the country’s reputation. Circumstances are a matter of paying our commitments. The refusal of the next parliament to pay bills passed by the previous parliament perfectly illustrates the government’s instability. ”

Investors holding US savings bonds are looking to cash out for fear the government will default. A reader who holds a Series I savings bond asked if it made sense to move that money into her certificate of deposit with a yield of nearly 4%.

For more timeless personal finance advice, order your copy of Michelle Singletary’s Money Milestones.

Do not act on fear. Pause and consider the following recommendations from financial experts. Here are the do’s and don’ts.

don’t bail out your bonds

This debt ceiling drama could culminate in a grisly last-minute deal, but don’t make hasty decisions, says Jacksonville, Fla.-based fee-only Life Planning Partners. Carolyn McClanahan, a certified financial planner she founded, warned.

To answer the question of I bondholders wondering whether she should sell, experts agree. don’t do it

“We go through this every few years and it usually works out,” McClanahan said. It’s not worth it.”

Series I savings bonds are still very safe. It also provides valuable protection against inflation, which CDs don’t, Benz said.

How to financially prepare for a debt ceiling crash

It is also important to remember that if the I-bond is held for less than 5 years, the last 3 months of interest will be forfeited.

Investors “will lock in guaranteed losses to avoid losses,” McClanahan said.

Finally, given the volatility that debt ceiling disruptions can bring to stocks, bonds should be held, said Russell Price, chief economist at Ameriprise Financial.

In the unlikely event of a default, the stock market would likely suffer a significant drop, which could prompt investors to rush into bonds, Mr. Price said.

“Initially, a safer investment may be fixed income securities,” he said.

don’t give up on the stock market

It’s a natural reaction to run away when you’re scared. But in this case it’s not wise.

The government is unlikely to default, Price said, but could incur losses if it jumps out of the market and Congress raises the debt ceiling at the last minute.

“People shouldn’t be making drastic adjustments,” he said. “They shouldn’t overreact.”

Instead, if you are an investor, play the long game.

“This kind of brink and uncertainty often causes volatility in stocks, so I like the idea of ​​people with at least a 10-year spending horizon if they want to own stocks,” Benz said. “That way, even if the stock price goes down and goes down for a while, you don’t run the risk of having to touch it when you’re feeling down.”

Have you ever been nervous about bank news or a stock market crash? Here are some tips

Make sure you have enough emergency funds to weather any short-term financial turmoil, says McClanahan.

Yes, you’ve heard of this. Still, we know that many Americans don’t have enough savings for financial emergencies.

“I like the idea that retirees and other people with short-term spending needs are keeping a true cash product for very short-term needs,” Benz said.

4 money rules when financial news makes you nervous

Interest rates are rising and debt is getting higher. Defaults can make things even worse.

“The most important thing you can do is get out of debt as much as possible,” McClanahan said.

Diversify, diversify, diversify

If ever there was a time to embrace diversification, it is it.

We need cash, bonds and stocks to weather this debt ceiling storm and other economic disasters.

In addition to emergency funding, Benz recommends a mix of high-quality bonds, including government, corporate and mortgage-backed securities, covering short- and medium-term spending needs in three to ten years. .

BOM — Michelle Singletary’s Best of Personal Finance

If you have a personal financial question for Washington Post columnist Michelle Singletary, call 1-855-ASK-POST (1-855-275-7678).

Protect your life from recession: A tsunami of economic news is leading consumers, investors and would-be homeowners to ask if a recession is inevitable. Practical steps you can take to protect yourself From worst case scenario.

Credit card debt: Carrying on your credit card debt is never a good thing and you need to get out of the habit.Considering that the Fed continues to hike rates, here are 7 ways to reduce your credit card debt.

Money moves for life: For an overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive packages provide guidance for every stage of her life, from those just starting their careers to those living well into retirement.

try yourself: Do you know where you stand financially? Take the quiz and read advice from Michelle.

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