The 2025 federal budget, known as “One Big Beautiful Bill Act” (OBBBA), introduces several provisions that could affect Americans’ retirement plans.
OBBBA Opportunities and Risks
The budget passed the House of Representatives on May 22, 2025. And while we face challenges in the Senate before it becomes law, we 1,110 pages OBBBA Discuss how that will affect your retirement plan.
However, Bruce Lorenz, a certified financial planner® with Boldin Advisors, warns:With a big and beautiful tax bill, you can turn the winners, losers and many heads in between. Some rules may simplify things, while others may require decoder ring, or at least IRS clarification. Good news? There is always an opportunity for planning to be buried in fine print. Staying aggressively (and possibly caffeinating) is the best way to stay ahead. ”
That being said, let’s take a look at some things to consider.
1. Degraded US Sovereign Credit Rating
Though not part of one big beautiful bill law (OBBBA), the impact of budget forecasts and shortfalls has impacted US credit ratings. On May 16, 2025, Moody’s downgraded the US sovereign credit rating from AAA to AA1, indicating for the first time since 1917 the US does not hold the highest credit ratings from any of the three major rating agencies.
Although the rating remains high, the downgrade reflects growing concerns about the country’s fiscal health, including rising debt levels and increased interest costs. And it can affect your asset allocation strategy.
Downgrades are historical, but their meaning is not clear
Let’s start by saying this is a historic change. And it’s difficult to predict what it means. Reactions (except for linking with clearly established financial plans or investment policy statements) are not the right move when it comes to investments.
Boldin’s financial coach Michael Kaufman wants to remind me of two powerful quotes.
“Changing your investment policy can be wrong. If you change it with a sense of urgency, you can guarantee it’s wrong.” – Charlie Ellis
“There are three legal investment strategies: be smarter than others, lucky more than others, and more patient than others.” – Morgan Howsel.
Kaufman commented on the quote from Haussel:These last tend to be the most reliable. ”
That being said, here are some considerations:
Impact on bond investments
The Ministry of Finance Rising: After the downgrade, the yield on long-term US Treasury bonds has skyrocketed, with 30-year yields exceeding 5%. This increase indicates an increase in government borrowing costs, which could lead to lower existing bond prices, affecting portfolios that are heavily weighted on long-term bond securities.
Period risk: The rising yields suggest that investors are demanding greater compensation to hold their long-term debt, reflecting concerns about inflation and fiscal sustainability.
Kaufman points out: “This environment emphasizes periodic risk due to the price sensitivity of existing long-term bonds to changes in interest rates.” He continued, “Users may consider ensuring that their financial plans can accept potential price volatility within their long-term bond exposure.”
Stocks and the impact on diversification
Downgrades add to market volatility and uncertainty. It’s important to remember:
- Have a plan and stick to it: If you have an investment policy statement, a plan for how to handle any environmental investment, every economic change is better. In most cases, it’s best to stick to target assignments and plan a rebalance no matter what.
- The benefits of diversification: In light of potential US fiscal challenges, diversifying investment internationally can provide exposure to economies where fiscal and monetary policies differ and may reduce portfolio risk.
- Traditional model under investigation: Classic 60% equity and 40% bond portfolio strategies have faced many challenges over the last few years. Negative correlations that traditionally provided balance are less reliable, as both equities and long-term debt experience volatility.
- Build flexibility in your plans: Economic uncertainty refers to periods when the future of the economy is unknown due to factors such as market volatility, inflation, employment instability, and geopolitical events. Learn about 10 ways to improve your financial outlook during times of uncertainty.
2. OBBBA extends tax rates for 2017
OBBB is pretty much good news for anyone who likes the low tax rates that were enacted in 2017. “Rogers said, “The only difference between death and taxes is that death does not worsen every time Congress meets,” but 2025 could be formed as an exception. ”
- Permanent tax reduction: The bill will extend the 2017 Tax Cuts and Employment Act provisions, permanently lowering income tax rates (or until another bill is passed), and maintain a $15 million real estate tax exemption. And according to Tax Policy Centermore than eight in ten households will continue to maintain lower taxes than they would have returned to the 2017 tax rate.
- Senior Tax Credit: A new $4,000 tax credit will be introduced for seniors under $75,000 with the aim of alleviating the financial burden on seniors.
- Increased salt deduction cap: The state and local tax (salt) deduction cap will triple to $40,000, potentially benefiting state retirees with high taxes.
Note: Assuming these changes are in place, the Boldin Planner team will strive to update the model as soon as possible.
3. OBBBA significantly reduces Medicaid impacting long-term care
Medicaid is a leading payer for long-term care services in the United States, covering more than half of the $415 billion spent annually on such services. This includes both institutional care (such as nursing homes) and home and community-based services (HCB) that personally support daily activities such as bathing, dressing, and meal preparation.
It is common for retirees who need long-term care to carry out their savings and who need Medicaid to cover their care. This budget will increase the need for a long-term care plan as part of your retirement plan.
Long-term care plans may be inadequate: A recent analysis of Boldin Planner data reveals that 43.3% of PlannerPlus subscribers plan to run their savings and choose Medicaid to cover their long-term care needs.
4. Medicare cuts are likely visible due to pay-as-you-go laws
There are no explicit cuts in Medicare for OBBBA, but experts say the increase in government bonds that are likely to arise from OBBBA will force Medicare cuts.
According to the pay-as-you-go law, if the deficit increases due to new laws, mandatory cuts begin. Congressional Budget Bureau This provision estimates $500 billion in Medicare reductions between 2026 and 2034.
5. OBBBA Social Security Clause
Social Security has not been cut, but there are some changes to the bill’s system.
- There is no tax exclusion on social security benefits: The bill does not rule out taxes on Social Security benefits, which was a promise from Trump’s campaign.
- Strengthening deductions for seniors: The bill provides an additional $4,000 deduction for individuals over the age of 65. It aims to provide tax easing to older people.
- Income Limitations: Enhanced deductions for seniors are subject to income restrictions, with the full deduction being applied to individuals of married couples up to $75,000 adjusted gross income and up to $150,000.
6. Changing your retirement account
The OBBBA has at least two provisions that encourage retirement savings.
Contributions to catch-up: Secure 2.0 ACT will have a higher catch-up contribution limit for individuals aged 60-63 starting in 2025, and these contributions must be made on a loss-based basis for high-income earners from 2026.
Automatic registration: The new 401(k) plan is mandatory to include auto-registration features, which could increase participation rates among employees.
7. Changes in retirement of federal employees
FERS Pension Calculation: The proposal suggests that the Federal Employee Employee Retirement Plan (FERS) pension calculations could be changed from a revenue of up to 3 years to a maximum of 5 years, reducing pension amounts.
Removal of FERS supplements: FERS pension supplements can close the gap to social security eligibility and may be eliminated for early retirements.
Conclusions about one big beautiful bill law (OBBBA)
The bill includes some drastic changes and the future is uncertain, but the potential impact on Medicare and Medicaid could pose the greatest risk for retirees and those close to retirement. It is also worth seeing the broader economic impact.
As always, run the “what if” scenario to build flexibility in your financial planning and understand how to cover yourself with various risk scenarios.
No matter how you feel about the One Big Beautiful Bill Act, now is a good time to join. Share your perspective Your Senator And let me hear your voice.
