From your 401(k) to bonds, here’s how to protect your financial well-being as loan default worries mount.


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CNN

White House and House GOP negotiators are rushing to hammer out a deal to raise the nation’s debt ceiling.

On Friday, Treasury Secretary Janet Yellen warned that the department would not have enough funds to pay all of the country’s obligations in full and on time unless a deal is reached. By June 5. That gives lawmakers a few more days to put together a package, but the X-date is still fast approaching.

On Wednesday night, Fitch Ratings was set A stern warning To the US government: Raise the debt ceiling or risk a downgrade of the world’s largest economy.

With just a week to go before that X-date, and still no deal to raise the debt ceiling — Americans’ finances are at stake.

failure Increase the credit limitThe amount the U.S. government can borrow to pay its bills can affect countless aspects of American life, from how much people pay for their mortgage to paychecks for federal employees and beyond.

House Majority Leader Steve Scalise said negotiators are continuing to work on a debt ceiling deal as the House continues to vote on Thursday, although Speaker Kevin McCarthy urged lawmakers to stay close over the Memorial Day weekend.

How can Americans prepare for a US default if the debt ceiling is not raised? Here’s how you can protect your financial well-being.

About 66 million retirees, disabled workers and others who receive Social Security benefits should brace themselves for possible delays in their monthly checks.

Many of them depend heavily on these funds to cover their living expenses, including food, rent, utilities and health care. Retired workers in 2023 will receive an average benefit of $1,827 a month.

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According to the National Committee to Protect Social Security and Medicare, nearly two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, it pays at least 90% of their income.

“Beneficiaries have earned their benefits through a lifetime of hard work and they rely on their benefits,” the group’s CEO Max Richtman wrote to lawmakers last month. “These payments are at risk of not being paid on time or in full for the first time in our nation’s history.”

However, the Treasury Department may continue to make timely payments because of the entitlement program’s trust fund, said Shai Agabas, director of economic policy at the Bipartisan Policy Center.

Benefits are paid four times a month on the third day of the month and on three Wednesdays. According to the Congressional Budget Office, about $25 billion is sent per week.

Review your equity-to-bond allocation and make any necessary adjustments, advises Martin. Stocks, which are riskier investments than bonds, tend to be more volatile as the expiration date approaches. CNN reported.

If the U.S. defaults, experts say it will have to be resolved. When that happens, there will be a “relief rally” in the market, said Callie Cox, eToro US investment analyst. previously told CNN.

However, there could be an immediate correction period once a deal is reached, as Treasuries replenish the cash they burn when they can’t borrow, said Michael Reynolds, vice president of investment strategy at Glenmead. told CNN.

Investors may be tempted to buy the dip, but “there are a lot of pressures on the economy,” Cox said.

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“You don’t want to overinvest with a recession on the horizon,” Reynolds said. In his view, it’s only worth taking advantage of a market selloff if the S&P 500 falls below 16% of its current value.

Experts say short-term investors should be more cautious.

Bond investors should expect volatility even during contract negotiations. US Treasuries are considered the world’s safest assets because they are backed by the full faith and credit of the United States, but uncertainty over the debt ceiling deal adds to the risk.

With Treasuries, the key question is when investors will be repaid, if not at all.

Even if the US narrowly misses the X-date, experts believe it will be resolved soon and the government will meet its obligations, CNN reported.

If you invest in bonds, pay attention to when your treasury bills mature.

Those who have invested in Treasury bills maturing on or after June 1 and who absolutely need the money at that time – for example, to pay their own bills – Now sell those bills And to reinvest in soon-to-maturity bills, Colin Martin, director of the Schwab Financial Research Center and a fixed-income strategist, suggested in an interview with CNN.

For those in bond funds, see if the bond portion of your portfolio has adequate exposure to intermediate- and long-term bonds, rather than being heavily weighted toward short-term high-yield bonds.

Stay away from corporate junk bonds or emerging market bonds, CNN previously reported. This is because if the US defaults, high-risk debt instruments will come under more pressure.

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“If you need to borrow money, you need the confidence of the markets to lend you money,” Martin said.

“Our general guideline is for investors to maintain a balanced portfolio according to their goals and be disciplined. A long-term view is critical in uncertain times,” Vanguard spokeswoman Jessica Shifalakwa previously told CNN.

Even if a deal is reached, stocks could lose as much as a third of their value, wiping out $12 trillion in household debt, according to Moody’s Analytics.

Some Defense Department workers may find their paychecks delayed — including 1.4 million active-duty ones. members of the military and more than 2 million federal civilian workers. Federal government contractors may experience payment delays, which could affect their ability to compensate their workers. CNN previously reported.

Military families should make sure they have extra cash and that their emergency funds are top of mind to deal with a missed paycheck, Mike Hunsberger, Owner of Next Mission Financial Planning and Air Force veteran, told CNN. For those on a thin budget, Hunsberger recommends checking back to see if there’s anything else to cut back on, at least temporarily.

Every military service has a system that can help people in crisis with temporary loans — think an emergency ticket home for a car breakdown or a family death, Hunsberger said. Some military-facing banks are also helpful.

Recipients of veterans benefits should also keep an emergency reserve ready — some of the disability payments and pensions for low-income veterans and their families could be affected by default.

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