The 2025 federal budget, known as the “One Large Billing Act” (OBBBA), proposes several provisions that could affect American retirement plans.
OBBBA Opportunities and Risks
The budget passed the House on May 22, 2025. Although it faces challenges in the Senate before becoming legislation, we can look at some of the 1,110-page OBBBA and discuss how it might affect your retirement plan.
However, Boldin Advisors’ Certified Financial Planning® BruceLorenz warns: “With any huge and beautiful tax bill, there will be winners, losers and a lot of grips in between. Some rules may simplify things, while others may require a decoder ring, or at least one or two IR clarifications. Good news? There is always a chance to plan to be buried in beautiful prints. Staying proactive (perhaps caffeine) is the best way to stay ahead. ”
Having said that, here are some things to consider:
1. Downgrade to US sovereign credit rating
While not part of the One Large Act Act (OBBBA), the impact of budget forecasts and growing deficits have affected U.S. credit ratings. On May 16, 2025, Moody's lowered the U.S. sovereign credit rating from AAA to AA1, the first time since 1917 that the U.S. no longer has a top credit rating for any of the three major rating agencies.
The downgrade, while still a high rating, still reflects an increasing focus on the country's fiscal health, including rising debt levels and increased interest costs. Moreover, it may have an impact on asset allocation strategies.
The downgrade is historical, but the meaning is unclear
Let's start by saying that this is a historic shift. Therefore, when it comes to investment, the meaning of being hard to predict is rarely the right move.
Boldin’s finance coach Michael Kaufman wants to remind you of two powerful quotes:
“If you change your investment policy, you may be wrong; if you make changes with a sense of urgency, you can guarantee that you are wrong.” – Charlie Ellis
“There are three legal investment strategies: smarter than others, luckier than others, and more patient than others. The last of them is often the most reliable.” – Morgan Housel.
Having said that, here are some considerations:
Impact on fixed income investment
Treasury yields rise: After the downgrade, the yield on long-term fiscal bonds in the United States surged, with a 30-year yield of more than 5%. This increase suggests higher government borrowing costs and may lead to lower prices of existing bonds, affecting the portfolio of long-term fixed-income securities.
Duration risk: Increased yields suggest that investors demand greater compensation for long-term debt, reflecting concerns about inflation and fiscal sustainability.
Kaufman pointed out: “This environment emphasizes duration risk due to the price sensitivity of existing long-term bonds to rate changes.” He continues “Users may consider verifying that their financial plans can accept potential price fluctuations within their long-term bond exposure.”
Impact on stocks and diversification
Degradation is increasing market volatility and uncertainty. It is important to remember:
- Have a plan and stick to it: When you have an investment policy statement, which is how to handle investment in any environment, you will perform best in any economic transformation. In any case, it is almost always best to stick to your goal allocation and plan to rebalance.
- The benefits of diversity: Given the potential fiscal challenges in the United States, international investment diversification can provide phenomena for economies with different fiscal and monetary policies, which has the potential to reduce portfolio risks.
- Traditional models for review: Over the past few years, the classic 60% equity and 40% bond portfolio strategy faces many challenges in many challenges. With the volatility of stocks and long-term bonds, the negative correlation of the balance traditionally offered is less reliable.
- Enhance flexibility for your planning: Economic uncertainty refers to periods when the future of the economy is unclear due to factors such as market volatility, inflation, job instability or geopolitical events. Learn about 10 ways to improve financial prospects during times of uncertainty.
2. obbba extends tax rates for 2017
OBBB is mostly good news for everyone who likes the low tax rates set in 2017. When Coach Kaufman quips, “Will Rogers is said, ‘The only difference between death and taxation is that every time you meet in Congress, death doesn’t get worse.” But… 2025 may be shaping an exception. ”
- Permanent tax cuts: The bill extends the Tax Cuts and Employment Act 2017, permanently (or until another bill passes) to lower the income tax rate and maintain $15 million in estate tax. And, according to the Tax Policy Center, more than eight of the 10th of households will continue to be lower than what we revert to 2017 interest rates.
- Advanced tax exemption: A new $4,000 tax break is proposed for seniors who earn less than $75,000, aimed at reducing the financial burden on older people.
- Salt buckle cap added: The upper limit of state and local tax (salt) deductions to $40,000 is likely to benefit retirees in high-tax states.
notes: Assuming these changes are in place, the Boldin Planners team will update our model as soon as possible.
3. Obbba makes significant cuts to Medicaid, impact on long-term care
Medicaid is the primary payer for long-term care services in the United States, covering half of the $415 billion spent on such services each year. This includes institutional care (such as nursing homes) and family and community services (HCBs), which can help individuals perform daily activities such as bathing, dressing up and meal preparation.
This is common for retirees who need long-term care to save and then need Medicaid to pay for care. As part of your retirement plan, this budget increases the need for long-term care plans.
Your long-term care plan may be insufficient: A recent analysis of data among Boldin planners shows that 43.3% of PlannerPlus subscribers plan to run through savings and then choose to go to Medicaid to meet long-term care needs.
4. Cuts in Medicare could be due to Payment Act
While there are no clear cuts in the OBBBA, experts say the increase in government debt that the OBBBA may cause will force Medicare to cut.
Under the Payment Act, mandatory cuts will begin if a new law is passed increases the deficit. The Congressional Budget Office estimates that the regulation cuts an estimated $500 billion in health insurance between 2026 and 2034.
5. Social Security Terms in Obbba
Social Security is not suitable for cuts, but there are some changes to the system in the bill:
- Taxes that do not eliminate Social Security Benefits: The bill did not eliminate taxes on Social Security benefits, which was Trump's campaign promise.
- Enhanced deductions for the elderly: The bill provides an additional $4,000 deduction for individuals over 65 years of age, aiming to provide some relief for older people.
- Income Limits: Enhanced senior deductions are subject to income restrictions, with full deductions applicable to improved adjusted gross income up to $75,000 and married couples up to $150,000.
6. Retirement account modification
There are at least two rules in the OBBBA to encourage retirement savings:
Chase Contribution: The Security 2.0 Act introduces higher catch-up contribution restrictions for individuals aged 60-63 starting in 2025 and requires these donations to be made for high-income earners based on Ross starting in 2026.
Automatic registration: The new 401(k) program is required to include automatic admissions, which may increase employee participation.
7. Federal employee retirement changes
FERS annuity calculation: Proposals suggest that changing the Federal Employee Retirement System (FERS) annuity calculation from the highest three-year gain to the highest five-year one could reduce pension amounts.
Eliminate FERS supplements: Annuity supplements that diffuse gaps until social security eligibility may be eliminated for early retirees.
Conclusion on a large bill (obbba)
The bill includes some radical changes, and despite uncertain futures, the potential impact on Medicare and Medicaid could pose the greatest risk to retirees and those who are about to retire. The wider economic impact is also worth a look.
As usual, build flexibility in your financial plan and run the “if” plan to see how you can mask yourself in a variety of risk plans.
No matter how you feel about a large bill bill, now is a good time to get involved. Share your views with the Senator and hear your voice.
