The importance of having a debt ceiling and a financial plan
February 17, 2023
Talk of a debt ceiling is all over the news right now. Here’s what that means, how it affects our personal finances, and the importance of having a strong financial plan to deal with such uncertainty. Summarize.
debt ceiling (or debt limit) is the total amount the U.S. government is authorized to borrow to meet existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on Treasury bonds, tax refunds, and other payments. is.
Debt limits do not authorize new spending commitments. It simply allows the government to fund existing legal obligations that Congress and presidents of both parties have done in the past.
US hit that $31.4 trillion debt ceiling We started hiring last month, headed by the Ministry of Finance.”Temporary measureTo help the federal government avoid defaulting on its obligations.
Part of the “temporary measures” is for the government to stop issuing new bonds and stop reinvesting in retirement funds. The Civil Service Retirement Disability Fund (CSRDF), Postal Service Retirement Health Benefit Fund (PSRHBF), and Federal Employees’ (TSP) Government Securities Investment Fund (G-Fund) are all affected. Fortunately, this is just an accounting gimmick. This tactic does not affect pension, health insurance, loan or withdrawal payments from the TSP. Federal law requires that after a debt limit is suspended or increased, special actions, including refunds of interest that may have accrued during the suspension, be reversed in order to complete each account. I have.
TSP posted this notice late last month.
“G Fund and Debt Limit — As of January 23, 2023, federal debt statutory limits prevented the U.S. Treasury from fully investing government securities investment (G) funds. However, G-Fund investors remain fully protected and G-Fund earnings are fully guaranteed by the federal government. This statutory guarantee has effectively protected G-Fund investors many times over the past 30 years. Your G Fund account balance will continue to generate income and will be updated every business day. Loans and withdrawals are unaffected. Learn more about debt limits on the U.S. Treasury website. “
If the debt ceiling is not raised or stopped, the government will have to rely on revenues to pay for ongoing federal spending. With limited resources, you must choose which obligations to pay and which to defer. Spending on government programs may be cut, federal buildings and services may be closed, and federal workers may be furloughed again.
The government is discussing what to do next. The previous government shutdown was from December 22, 2018 to January 25, 2019 (35 days), the longest government shutdown in history.
In the midst of such looming uncertainty, I would like to remind you how important it is to have sound financial planning, including funding your emergency account. The Emergency Fund consists of the following funds:
- An FDIC-insured savings account at a local bank, credit union, or online bank.
- FDIC Insured Certificate of Deposit (CD)
- Treasury or federal money market funds in personal, joint, or trust securities accounts
These accounts have no volatility. Let’s call this Bucket 1. Bucket 1 has emergency funds and withdrawal needs for up to 3 years. Stock and bond markets haven’t fallen in three years since 1926, so don’t worry. Not having to worry about the market is a unique feature and helps with a good night’s sleep.
We hope this article has helped you clear up any current news regarding the debt ceiling.
Learn more about debt limits here. Ministry of Finance website For a comprehensive FAQ, please check out Narfe (Federal Benefits) website