Increasing the Debt Ceiling Impacts You Now … and Later
In the aftermath of the first government shutdown in 17 years, economists are bandying about a number of staggering figures to show the obscene cost government inaction will costs its taxpaying citizenry. An estimated $300 million per week in losses in work and services rendered by furloughed workers. Nearly $30 million daily for businesses and local governments due to lost revenues. Anywhere from zero to 1.5% of fourth quarter GDP due to loss of productivity. Even the unproductive debate leading up to the shutdown was costly, with taxpayers expected to shoulder an estimated $18.9 billion.
While a considerable amount of time is spent calculating the costs to us today, very little has been spent calculating the costs to our future selves—specifically the effects of today’s policies on our ability to accumulate the appropriately sized retirement savings nest egg needed to sustain us through our golden years. According to figures from the Social Security Administration, about one-quarter of married retirees and nearly half of unmarried retirees currently rely on government benefits for a staggering 90% of their retirement income. If we are not currently in a crisis of dependency on government support for retirees, I think we are rapidly approaching one. It’s obvious the government should be doing everything it can to promote savings for retirees, so they can be self-reliant and not dependent on government support. Not saving for retirement increases demand for more governmental services triggering greater spending and governmental debt. Policy brinkmanship over the debt limit only serves to set us back from focusing on our real issues – constant government overspending and the need for retirees guaranteed retirement income to come from more than social security.
The simple fact that policymakers cannot reach a definitive and actionable solution to slow our government spending—and more disturbingly, continue to delay addressing this urgent task with meaningful action– is not just a short-term issue that affects our ability to pay current obligations, it is an issue with far-reaching impact that can result in devaluation of our currency, hyperinflation and price volatility ultimately leading to a decrease in value of our retirement nest eggs.
For retirees whose nest eggs are heavily invested in equities, the real value of their savings will fluctuate wildly. If this happens, a retiree who starts withdrawals during a down market will reduce his/her principal balance faster than expected and will need unrealistic yields in out years to allow withdrawals to continue, or the retiree will be faced with having to drastically adjust annual withdrawals accordingly—something few investors take into consideration.
For the past several years, the nation has perilously teetered on the edge of a fiscal cliff, to the point that the only “solution” has been to kick the can down the road and to raise the cap on an already over-the-top debt limit. Consequently, consumers’ confidence in the government’s ability and effectiveness to save our sinking financial ship is eroding. Moreover, consumers’ confidence in the economy, as a whole, is also deteriorating. In turn, people keep their focus on securing their financial outlook today at the cost of ignoring what waits for them tomorrow.
Certainly, there are steps that individuals can take to secure their own financial future, such as elongating their retirement savings window, decreasing their reliance on risky financial instruments to rapidly increase the size of their nest egg, and balancing their portfolio with products that can offer a guaranteed paycheck for life – All of which can supplement or even replace government payouts if necessary. However, these individual steps must be made in conjunction with our government reaching a real financial solution to our excess spending and debt creation so consumers can feel empowered to take the necessary steps to secure their own financial future.