Let’s kick off April with a riddle:
I’m the guest who never leaves, yet I’m never on the invite list.
I grow while you sleep, I eat before you sit down to dinner, and I’m currently worth about $114,000 for every person in America. Most people ignore me because I’m “too big” to understand—until I start quietly nibbling away at your retirement savings.
The guest’s name? The National Debt.
The total is nearly $39 trillion. It’s a massive, unsettling number.
What’s more, a debt of this magnitude forces the government’s hand, leading to the “quiet” erosion of your purchasing power.
Our role is to help manage these side effects over time.
Three Debt-Control Levers
To manage debt, the government typically pulls three levers. Each move helps stabilize the national balance sheet, but typically creates a “hidden tax” on your savings.
The levers include:
- Allowing Inflation to Climb: One way to pay off debt is by letting the dollar’s value shrink. By weakening the dollar’s power, the government essentially pays back its obligations with “cheaper” money. While this lightens the debt load, it means you face higher costs in your daily life.
- Letting Interest Rates Fluctuate: Currently, about 75% of U.S. debt is owned domestically. With the government selling more debt each year, it must raise interest rates to entice buyers to move from “I have enough” to “I’ll take more.” In general, every dollar spent on debt interest is a dollar diverted from public services and infrastructure.
- Raising Taxes: When inflation and interest rate adjustments aren’t enough to cover the gap, tax policy becomes the final lever. This is the most direct way the government bridges the deficit, often resulting in higher tax rates or fewer deductions.
Your Portfolio: Controlling the Controllables
The debt total is mostly out of our hands.
However, we can control our response to it.
Our approach focuses on insulating your portfolio from the downside risks.
This starts with how we position your assets for the long haul using four key strategies:
#1—Protecting Your Buying Power
Inflation doesn’t happen all at once; it’s a slow erosion of your lifestyle.
To counter this, we rely on growth assets like equities diversified across both U.S. and international companies.
The goal is to help ensure your money keeps pace with rising costs so your standard of living never has to shrink to fit the economy.
#2—Getting Ahead of Future Taxes
If your money is mostly in tax-deferred accounts like traditional IRAs or 401(k)s, then you essentially co-own your account(s) with the IRS.
Therefore, we use strategies like Roth conversions and tax location so that if tax rates rise to cover the national debt later, you keep a bigger slice of your own pie.
Here’s what this looks like in practice:
- Tax-Protected Placement: We keep high-tax investments, like REITs and high-yield bonds, inside your IRAs. This helps shield these higher interest payments from being taxed at your ordinary income rate.
- Tax-Efficient Growth: We prioritize low-turnover index funds and ETFs in your taxable brokerage accounts. These assets generate very little tax drag, allowing you to keep more of your returns compounding over time. In fact, we’ve shared how compound interest plays a vital role in maintaining your retirement lifestyle.
- Strategic Municipal Bonds: For clients in higher tax brackets, we use municipal bonds in taxable accounts. This creates a federal tax-free income stream without “wasting” the valuable tax-deferred space inside your retirement accounts.
#3—Staying Flexible With Interest Rates
When the government issues more debt, rates generally climb to attract buyers.
Rather than locking you into long-term bonds that might get “stuck” in yesterday’s rates, we use short-to-intermediate bond ladders. This keeps us nimble so we can capture better yields as they happen.
#4—Building Policy-Proof Income
We can’t predict what will happen with Social Security or future fiscal policy.
That’s why we stress-test your plan against different Social Security scenarios and use dynamic “guardrail” modeling to build diversified income streams.
We want your retirement to stay stable regardless of shifting economic policies.
The Bottom Line
The national debt is an economic reality.
It’s also a factor we weigh carefully when managing your long-term strategy.
If you’d like to sit down and go over the specifics of your portfolio, reach out anytime.
–David Bunker, Financial Advisor & Licensed Fiduciary
P.S. In case you missed it, our latest post explains why Markets Don’t Send Invitations When the Best Days Arrive.
Before You Go
Get help optimizing your retirement income. Download our FREE “Prolonging Retirement Income” checklist.
Also, receive help retiring to the life you want, schedule a complimentary financial planning consultation.
This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
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