Economy

< What the debt ceiling standoff could mean for your retirement plans

What the debt ceiling standoff could mean for your retirement plans

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A MARTÍNEZ, HOST:

President Biden and congressional leaders are set to meet tomorrow over the debt ceiling. A possible default is about two weeks away, and Biden calls that prospect catastrophic.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: Our economy would fall into a significant recession. It would devastate retirement accounts, increase borrowing costs. According to Moody's, nearly 8 million Americans would lose their jobs.

MARTÍNEZ: Devastate retirement accounts - we wanted to zoom in on that part. So we called Joel Dickson. He's the global head of advice methodology at the investment firm Vanguard. Joel, what does one thing have to do with the other, the ability to pay the nation's debts and retirement accounts?

JOEL DICKSON: Well, that question has really been what we've been hearing, too, directly from our clients. You know, the relationship of credit, the ability for the U.S. government to finance its own investments and for their - then investors and businesses, their financing costs and their ability to invest is at risk or at - in question with, you know, the debt crisis looming. So investors should definitely...

MARTÍNEZ: But why, Joel? I mean, everything I've put away, is that all of a sudden going to be used to pay for something else? Or, I mean, what am I doing here?

DICKSON: No, not in that form.

MARTÍNEZ: OK.

DICKSON: I think what is certain is going to be that there is going to be increased market volatility as we get closer and closer to the debt ceiling and raising the debt limit and certainly in the event of a default. But whether that volatility actually manifests itself in lower or higher returns at any given point in time is really not under an investor's control and is really, really hard to predict.

MARTÍNEZ: So how does your firm - a firm like yours prepare to protect its customers?

DICKSON: Yeah, so there are a number of ways. One is in just kind of reminding investors to think about the long-term perspective. Most retirement savings is about saving over the long term. And shorter-term market events, like a temporary - what we would expect to be a temporary, you know, blip, if you will, in the debt issues, likely, when you zoom out, does not have a significant longer-term effect on retirement savings. Not to say there wouldn't be disruption. There certainly would be because investors should definitely be prepared for potentially significant volatility as we get closer to the deadline.

MARTÍNEZ: So say if you're in your 50s and you're looking to retire, say, in 10 or 15 years, you've got to kind of keep the long game in mind.

DICKSON: Absolutely. I mean, the best way for investors to achieve their own success is by focusing on the things that they can control, saving regularly, keeping costs and taxes from eating away at your nest egg and knowing what you need to meet your goals. Sticking to that plan and controlling what you can is the best way for success. When it talk about investing, the markets, market returns, what's happening in the political environment is not really under an investor's control. And so there, it's about not putting all of your eggs in one basket so that you're able to withstand many possible outcomes because we don't know or can't control what happens there.

MARTÍNEZ: But what if I was planning on retiring this year. After working a lifetime, Joel, I'm planning on retiring this year. What do I do?

DICKSON: So that's where I do think there are some other issues that you need to think through. If, however, we're talking about your end retirement, well, that's the very nature of retirement accounts, is you're using it often to pay for your daily expenses and your annual living. But there may be different ways to think about withdrawing your accounts in inflationary periods or in times when markets are down. Again, that's having a well-diversified approach to spending, the timing of it and how you're saving for the longer term and then drawing that down.

MARTÍNEZ: Joel, regrettably, I'm going to have to leave it right there. Joel Dickson at the investment firm Vanguard. Joel, thanks.

DICKSON: Thanks, A.

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