News June 1, 2023

Senate Considers House-Passed Debt Ceiling Bill

Bipartisan approval in the House clears the way for the measure to avert a U.S. default.

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The House of Representatives late Wednesday night passed The Fiscal Responsibility Act by a bipartisan vote of 314 to 117, setting the stage for the federal debt ceiling to be suspended until January 2025.

The bill, H.R. 3746, was supported by a majority of members from both parties (149 to 71 among Republicans, 165 to 46 among Democrats). The bill makes certain cuts in discretionary spending, rescinds unobligated funds and expands work requirements for some federal programs.

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The Democrat-controlled Senate began debate on the bill on Thursday and was still discussing it by Thursday evening, with the goal of sending it to President Joe Biden for his signature before June 5, the date on which the Department of the Treasury has said the U.S. would no longer be able to pay the government’s bills. If the Senate were to amend the measure, it would have to go back to the House for reconciliation, which would delay passage.

In exchange for suspending the debt ceiling until 2025, House Speaker Kevin McCarthy, R-California, negotiated increased work requirements for federal benefits programs, including food stamps (the Supplemental Nutrition Assistance Program) and welfare (Temporary Aid to Needy Families).

The House-passed bill also includes a streamlined permitting process for energy projects and prevents a further pause on student loan repayments past September. It also claws back unspent COVID-related funds and about $20 billion of the $80 billion in additional spending that had been authorized for IRS enforcement efforts.

The Congressional Budget Office, in a May 30 letter to McCarthy about the bill’s impact, projected the bill would reduce federal budget deficits by “about $1.5 trillion over the 2023-2033 period relative to its May 2023 baseline projections.”

Overall, the CBO wrote, “Reductions in projected discretionary outlays would amount to $1.3 trillion over the 2024–2033 period. Mandatory spending would, on net, decrease by $10 billion, and revenues would, on net, decrease by $2 billion over the 2023–2033 period. As a consequence, interest on the public debt would decline by $188 billion.”

During the Senate discussion of the measure senators stressed the importance of not defaulting on U.S. obligations and some Republicans raised concerns about the level of defense spending included in the agreement.

“Defaulting on our national debt is unacceptable, unthinkable—we cannot let it occur,” Senate Majority Whip Dick Durbin, D-Illinois, said on the Senate floor ahead of the vote that. “So as painful as some of the decisions that will come from this agreement being reached are, they are virtually at this point inevitable to avoid default on our debt.”

Senate minority leader Mitch McConnell, R-Kentucky, championed the majority-Republican led House in getting the bill passed.

“The fiscal responsibility act avoids the catastrophic consequences of a default on our nation’s debt,” McConnell said on the floor of the Senate. “And just as importantly, it makes the most serious headway in years toward curbing Washington Democrats’ reckless spending addiction. …. After two years of reckless spending and painful runaway inflation, the American people elected a Republican House Majority to serve as a check on Washington Democrats’ power.”

Other Republican senators used their time to turn to the details of spending, including a push for more defense spending from the White House.

“The defense budget submitted by President Biden and included as the top line in this package is insufficient to the task of fully implementing the national defense strategy at a time when we face serious and growing threats around the world,” said Senator Susan Collins, R-Maine. Collins went on to suggest an “emergency defense supplemental” for the Department of Defense.

Data and Research June 1, 2023

Young Adult Retirement Confidence Linked to Worries About Uncertain Future

This generation’s outlook on climate change, social injustice and political turmoil can very much affect how young adults feel about their finances and saving for retirement, according to new data from TIAA. 

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A majority of young adults believe they can make a difference in the world. But when it comes to their own wallets and financial futures, these individuals—between the ages of 24 and 35—feel a lack of control, particularly those with a low socioeconomic status. 

The Young Adults Personal and World Outlook Survey conducted by the TIAA Institute in collaboration with Georgetown University’s McDonough School of Business and released publicly on Thursday, found that young adults’ retirement confidence is linked to their attitudes toward planning for an uncertain future 

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These attitudes about the future vary across demographic groups. For instance, a higher percentage of low-income young adults, ages 24 to 27, feel that thinking about the challenges they will face in the world makes them want to “just live for today.” 

Conversely, substantially more high-income young adults feel that thinking about global challenges makes them want to plan and be prepared for an uncertain future, according to the study. 

Across all demographic groups, one half of young adults reported feeling that with the way things are going today, they do not expect to do as well in life, financially, as their parents did. This percentage was higher among low-income adults (60%, versus 34% of high-income young adults) and younger adults aged 24 to 27 (56%, versus 46% for adults aged 32 to 35). 

Confidence Varies 

When asked about saving for retirement, young adults ranked it as a top-three saving priority, falling just behind saving for emergencies (59%) and saving for a long-term goal or purchase (49%), such as a house or car.  

However, high-income young adults were substantially more confident that they will be able to fully retire at a certain age (75%), while female, younger adults aged 24-27 and low-income young adults were much less confident (50%, 50% and 40%, respectively).  

The study found that high-income and male adults are also more likely to save on a regular basis, which likely contributes to their retirement confidence.  

One in five young adults (22%) expressed that they never expect to fully retire but may work less or do something different when they can afford to not work full-time, while 14% of young adults do not expect to ever be able to afford to fully retire. According to TIAA, high-income and Black/African American (as identified in the research) young adults were substantially less likely to say they do not expect to ever be able to fully retire (5% and 6%, respectively). 

Those surveyed also do not expect to have a single or even “main” source of retirement income. Rather, TIAA found that they expect to withdraw from multiple savings and investment vehicles, the top three being personal savings, a workplace retirement plan and Social Security.  

Three in four young adults currently have a retirement savings plan, most through their employer. According to the study, 48% participate in a retirement savings plan offered by their employer, and 13% have purchased a retirement plan on their own. 

A majority of the young adults who participate in their workplace retirement plan said they actively chose to participate, while 34% said they were automatically enrolled.  

Risk Tolerance 

Once enrolled in the plan, one-third (36%) said they actively manage how their savings are invested; another third (33%) indicated they allow the plan to pick their investments based on age, risk tolerance and other factors; and the remaining third (24%) indicated that they rely on a combination of active and passive investments. A small portion (7%) of the young adults surveyed said they do not know how their savings are invested.  

The level of risk those surveyed said they are willing to take with their retirement plan investments also varied by demographic group, but TIAA argued that risk tolerance is generally linked to investment engagement. 

For example, high-income and male young adults were more likely to say they actively manage their money and are also willing to accept the risk of losing some of the money they put into a retirement account in exchange for higher returns. 

The exception to this link is that Black/African American young adults who actively manage their investments said they also lean toward being more risk-averse. 

Despite their stated risk tolerance, many young adults were uncertain as to whether their retirement provides a guaranteed minimum income. More than two-thirds of respondents said they are either certain their plan provides guaranteed income or think it does, whereas the remaining third are not sure or do not think it does. 

“Young adults’ uncertainty about whether their workplace retirement savings plan provides guaranteed minimum income is troubling and also begs the question of whether they fully understand their retirement plan features,” the report stated. 

The report further pointed out that the disconnect between the level of risk young adults are willing to take with their retirement savings and their engagement in and understanding of plan investments and features is something plan sponsors and plan advisers should be aware of. 

TIAA also did not find any standout sources that young adults rely on for retirement planning information. Two in five young adults identified financial advisers and planners as trusted sources, followed by their employer, parents or other family members and friends or work colleagues. Substantially more high-income than low-income young adults were likely to identify financial advisers or employers as a trusted source.  

TIAA recommends that plan sponsors provide financial wellness programs to help young adults plan for the future and reduce their financial stress. The survey also recommended that plan sponsors establish auto features and automatically enroll young adults into their workplace retirement savings plan. 

“Employers also need to help young adults increase their understanding of appropriate diversification of retirement savings investments and whether their workplace plan provides for minimum income guarantees at retirement, as well as provide default options and tools to help young adults with their investments and guaranteed forms of payment at retirement,” the report stated.  

The survey was conducted from March 2 to March 7 and received responses from 1,009 full-time employees, ages 24 to 35, across all genders, geographic locations, education and income levels.  

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