CALL US AT (804) 285-7333

U
Godsey and Gibb Wealth Management (logo)
Client Portal
Meet With An Advisor

May 21, 2023 | Q&A

Should I be concerned over the current debt ceiling debate?

Tags:
Exterior of Capitol Building
The fight over the debt ceiling has been dominating news cycles lately. Understandably, this has created concern among many of our clients and spurred a variety of questions about our expectations and how this current fight fits in a historical context. A deal has been reached in principle, but it still must pass through both houses of Congress. This is likely to happen, but may not be a quick or clean process.

IS HISTORY REPEATING ITSELF?

Congress has raised the debt ceiling dozens of times over the past decades in what usually amounts to a procedural affair. However, there are notable exceptions. In 2011, Congress increased the debt limit just days before a potential default. This prompted Standard & Poor’s to downgrade the credit rating of the United States from AAA to AA+, citing uncertainty created by political brinkmanship.

WHAT IS THE WORST-CASE SCENARIO?

A default, whether in the form of delayed interest payments owed on U.S. Treasuries or other obligations, would be unprecedented and potentially catastrophic. While we don’t doubt the United States’ ability to pay for its obligations, a default would have deep and widespread negative impacts on the perception of the U.S. government. Should a default happen, and lenders could no longer rely on the government to pay them back on time, the damage to U.S. credibility would be irreversible. The U.S. credit rating would likely fall, and borrowing costs would likely rise. Increased volatility in financial markets would be a certainty as investors attempt to navigate the unprecedented event.

WHAT CAN WE EXPECT TO HAPPEN WITH THE DEBT-CEILING?

The most likely path forward includes a two-step solution. Step one would be a short-term increase to the debt ceiling to avoid violating the borrowing limit and a potential default, while agreeing that concrete concessions from both parties will be included in a forthcoming bill. Step two would be enacting a bipartisan bill negotiated between the President and congressional leadership.

IS THERE A SILVER LINING?

The United States has a problem with deficit spending. While political parties can disagree on the means to reduce this deficit spending, there is a broad consensus that continuing on our current path is unsustainable as debt service payments make up a larger and larger part of the annual budget. To that end, the compromise brewing in Washington, while likely to leave nobody happy, is good for the long-term financial health of our country. If you have any questions regarding the debt ceiling and how potential results may affect your investments, please reach out to your wealth management advisor. Author: Michael Gibb | President & CEO Written: May 21, 2023

How Retirement Accounts and Taxes Affect How Much You Need

A retirement nest egg of $1,000,000 in a traditional 401 k is not the same as $1,000,000 in a Roth account or taxable brokerage account. Taxes can significantly change how much retirement income you actually get to spend.

Account types and taxation:

  • Pre-tax accounts (traditional 401(k), traditional IRA): Withdrawals from 401(k)s and traditional IRAs are typically taxable as ordinary income
  • Tax-free accounts (Roth IRA, Roth 401(k)): Qualified withdrawals are generally tax-free
  • Taxable accounts (joint brokerage, trusts): Subject to capital gains taxes

Retirement income may still be taxable, including traditional 401(k)/IRA withdrawals and Social Security taxation. Required minimum distributions from an individual retirement account or employer sponsored retirement plan start at age 73 under current law, potentially forcing higher taxable income and affecting Medicare premiums.

State income taxes differ significantly. Virginia and South Carolina tax retirement income (though SC offers some exemptions), while Florida and Arizona have no state income tax. Relocating in retirement may affect your gross income needs after tax.

Tax-aware withdrawal strategies—such as blending withdrawals from traditional and Roth accounts, realizing capital gains strategically, or performing Roth conversions before RMD age—may help optimize your financial situation. However, tax laws and brackets can change. Working with a team that integrates investment management with ongoing tax strategy and preparation, like Godsey & Gibb’s in-house CPA team, can help keep your retirement plan and tax advice current. Consult your tax advisor for guidance on your particular investment and account structure.

Pitfalls of Popular On/Off-Track Benchmarks

Widely-referenced age-based retirement savings goals suggest you have: 1x your annual salary saved by age 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67 to maintain your current lifestyle in retirement if you plan to retire at this traditional retirement age. A common guideline is to save between 10% and 15% of your annual pretax income for retirement, assuming a 40- to 45-year working career.

This framework was developed by Fidelity Investments internal research around 2014 and used in part as a marketing tool. Certain assumptions—such as social security accounting for 35% of one’s retirement income—are inapplicable to many affluent retirees. The framework was validated for incomes between $50,000 and $300,000, another indication it doesn’t apply to everyone.

Common pitfalls that distort how much money someone thinks they need:

  • Underestimating healthcare costs

  • Ignoring inflation’s impact on living expenses over 25+ years

  • Assuming very high future results from investment strategies

  • Not planning for long-term care or surviving spouse needs

A retirement calculator can help gauge whether current retirement savings and asset allocation align roughly with targets, but complex situations—business owners, large concentrated stock positions, potential inheritance—usually benefit from professional modeling. Investing involves risk, and actual investment results will vary.

At Godsey & Gibb, we frequently review progress towards retirement with clients and adjust their savings plan as markets, tax law, and personal financial goals evolve.

A retired couple strolls hand in hand through a serene park, surrounded by lush greenery and blooming flowers, enjoying their time together in nature. Their relaxed demeanor reflects the joys of retirement, a time when they may also be considering aspects of their healthcare, such as Medicare premiums and the impact of modified adjusted gross income on their medical insurance costs.

Why a Personalized Retirement Plan and Ongoing Professional Guidance Matter

How much retirement income you need is not a one-time calculation. It’s a moving target influenced by markets, inflation, health, tax legislation, family needs, and personal goals. To start saving effectively for retirement, you may benefit from a plan that adapts.

A personalized retirement plan typically includes:

  • A detailed retirement budget and spending map

  • Investment strategy aligned with investment objectives

  • Tax strategy coordinated with distributions

  • Estate and legacy planning (wills, trusts)

  • Risk management (insurance, long-term care planning, survivor income planning)

Developing the plan is only half the work. Executing the plan—making investment changes, tax decisions, and distribution adjustments year by year—is equally complex. Many retirees find that working with financial advisors who can delay retirement decisions strategically, coordinate employer match optimization while still working, and manage the transition is valuable.

Godsey & Gibb’s model brings financial planners, portfolio managers, and CPAs under one roof so that tax strategy, investment management, retirement income planning, and estate considerations can be coordinated. We focus on helping clients understand how much retirement savings they may need given their current age and goals, leveraging expertise in all the necessary areas of complexity.

If you’re in the Richmond, Greenville, Jacksonville, or Phoenix areas, consider a conversation with a fiduciary financial planner to refine your own directional retirement number. With thoughtful planning, periodic review, and the right advisory team, we strive to help clients approach their retirement years with greater clarity and confidence about how much income their savings may support.

MEET WITH AN ADVISOR

Information contained herein is for general educational purposes only and is not intended to be substituted for personalized investment, financial, tax, or legal advice as individual situations can vary. The use of charts, graphs, formulas, and other illustrations are not intended to be used independently to guide investment decisions or to determine which securities to buy or sell, or when to buy or sell them. Information was obtained from sources considered reliable, but no representations or warranties are made to its accuracy, timeliness, suitability, or completeness. Statements expressed are opinions of certain Godsey & Gibb Wealth Management personnel and are subject to change without notice. Forward-looking statements expressed herein are subject to change due to shifts in the market and economic conditions. Full disclosure: https://www.godseyandgibb.com/disclosure/

Disclosure: Our website contains links to third-party websites which are provided as a convenience only. These sites contain information by organizations independent of Godsey & Gibb Wealth Management. We do not endorse the content, advertisements, activities, nor the products of these linked websites. Furthermore, we do not receive compensation for linking to any third-party websites, or control these websites, and do not assume responsibility for the accuracy, completeness, or timeliness of the information located on these linked websites or provided through the third-parties. Accessing any linked third-party websites, tools or programs is at your own risk and subject to all terms, conditions, and privacy policies of those third parties. View full disclosure.