The 2025 federal budget, dubbed the “One Big Beautiful Bill Act” (OBBBA), introduces several provisions that could impact retirement planning for Americans.
Opportunities and Risks with the OBBBA
The Budget was passed through the House of Representatives on May 22, 2025. And, while it faces challenges in the Senate before becoming legislation, we can look at some of what is in the 1,110 page OBBBA and discuss how it might impact your retirement plans.
However, Bruce Lorenz, a Certified Financial Planner® with Boldin Advisors cautions: “With any big, beautiful tax bill, there are bound to be winners, losers, and a lot of head-scratching in between. Some rules may simplify things, others might require a decoder ring—or at least an IRS clarification or two. The good news? There are always planning opportunities buried in the fine print. Staying proactive (and maybe caffeinated) is the best way to stay ahead.”
That being said, here is a look at a few things to consider:
1. The Downgrade to the U.S. Sovereign Credit Rating
While not part of the One Big Beautiful Bill Act (OBBBA), the implications of the budget projections and a growing deficit are impacting the United States’ credit rating. On May 16, 2025, Moody’s downgraded the U.S. sovereign credit rating from Aaa to Aa1, marking the first time since 1917 that the United States no longer holds a top-tier credit rating from any of the three major rating agencies.
While still a high rating, the downgrade reflects growing concerns over the nation’s fiscal health, including rising debt levels and increasing interest costs. And, it could have implications for asset allocation strategies.
The downgrade is historic but the implications are not clear
Let’s just start by saying that this is a historic shift. And, the implications are hard to predict. Reacting (other than in coordination with a well-devised financial plan or investment policy statement) is rarely the right move when it comes to investments.
Michael Kaufman, a financial coach at Boldin, would like to remind you of two powerful quotes:
“If you change your investment policy, you are likely to be wrong; if you change it with a sense of urgency, you’re guaranteed to be wrong.” – Charlie Ellis
“There are three legal investment strategies: be smarter than others, be luckier than others, and be more patient than others.” – Morgan Housel.
Kaufman commented on the Housel quote, “The last of these tends to be the most dependable.”
That being said, here are a few considerations:
Implications for fixed income investments
Rising Treasury Yields: Following the downgrade, yields on long-term U.S. Treasury bonds have surged, with the 30-year yield exceeding 5%. This increase indicates higher borrowing costs for the government and can lead to declines in existing bond prices, affecting portfolios heavily weighted in long-duration fixed income securities.
Duration Risk: The heightened yields suggest that investors are demanding greater compensation for holding longer-term debt, reflecting concerns about inflation and fiscal sustainability.
Kaufman points out: “This environment highlights duration risk, due to the price sensitivity of existing long-term bonds to interest rate changes.” He continued, “Users might consider verifying that their financial plan can accept potential price volatility within their long term bond exposure.”
Impact on equities and diversification
The downgrade is adding to market volatility and uncertainty. It is important to remember:
- Have a plan and stick to it: You are better off in any economic shift when you have an Investment Policy Statement, a plan for how to handle your investments in any environment. It is almost always best to stick to your target allocations and plan for rebalancing, no matter what.
- Diversification Benefits: In light of potential U.S. fiscal challenges, diversifying investments internationally can offer exposure to economies with different fiscal and monetary policies, potentially reducing portfolio risk.
- Traditional model under scrutiny: The classic 60% equity and 40% bond portfolio strategy has faced many challenges in the last few years. With both equities and long-term bonds experiencing volatility, the negative correlation that traditionally provided balance is less reliable.
- Build flexibility into your plans: Economic uncertainty refers to periods when the future of the economy is unclear due to factors like market volatility, inflation, job instability, or geopolitical events. Learn about 10 ways to improve your financial outlook during times of uncertainty.
2. The OBBBA Extends 2017 Tax Rates
The OBBB is mostly good news for everyone who likes the low tax rates that that were enacted in 2017. As Coach Kaufman quipped, “Will Rogers supposedly said that, ‘the only difference between death and taxes is that death doesn’t get worse every time Congress meets.’ However… 2025 may be shaping up to be an exception.”
- Permanent Tax Cuts: The bill extends the 2017 Tax Cuts and Jobs Act provisions, permanently (or until another bill is passed) lowering income tax rates and maintaining a $15 million estate tax exemption. And, according to the Tax Policy Center, more than eight in ten households would continue to have lower taxes than if we reverted to the 2017 rates.
- Senior Tax Deduction: A new $4,000 tax deduction is introduced for seniors earning under $75,000, aiming to ease the financial burden on older adults.
- SALT Deduction Cap Increase: The state and local tax (SALT) deduction cap is tripled to $40,000, potentially benefiting retirees in high-tax states.
NOTE: Assuming these changes are enacted, the Boldin Planner team will endeavor to update our models as soon as possible.
3. OBBBA Makes Major Cuts to Medicaid with Implications for Long-Term Care
Medicaid is the primary payer for long-term care services in the United States, covering over half of the $415 billion spent annually on such services. This includes both institutional care (e.g., nursing homes) and home- and community-based services (HCBS) that assist individuals with daily activities like bathing, dressing, and meal preparation.
It is common for retirees who require long-term care to run through their savings and then need Medicaid to cover their care. This budget heightens the need for long-term care planning as part of your retirement planning.
Your Plan for Long Term Care May Be Inadequate: A recent analysis of data in the Boldin Planner revealed that 43.3% of PlannerPlus subscribers plan to run through savings and then opt into Medicaid to cover a long term care need.
4. Medicare Cuts Look Likely Due to the Pay-as-You-Go Act
While there are no explicit cuts to Medicare in the OBBBA, experts say that the increase in the national debt that is likely to result from OBBBA would force cuts to Medicare.
According to the Pay-as-You-Go Act, if the deficit is increased by a new law, mandatory cuts will kick in. The Congressional Budget Office estimates $500 billion of Medicare cuts between 2026 and 2034 with this provision.
5. Social Security provisions in the OBBBA
Social Security is not up for cuts, but there are a few changes to the system in the bill:
- No elimination of taxes on Social Security benefits: The bill does not eliminate taxes on Social Security benefits, which was a campaign promise by Trump.
- Enhanced deduction for seniors: The bill provides an extra $4,000 deduction for individuals over 65, which is intended to provide some tax relief for seniors.
- Income limitations: The enhanced deduction for seniors is subject to income limitations, with the full deduction applying to individuals with up to $75,000 in modified adjusted gross income and married couples with up to $150,000.
6. Retirement Account Modifications
There are at least two provisions in the OBBBA that encourage retirement savings:
Catch-Up Contributions: The SECURE 2.0 Act introduces higher catch-up contribution limits for individuals aged 60-63 starting in 2025, with a requirement to make these contributions on a Roth basis for high earners beginning in 2026.
Automatic Enrollment: New 401(k) plans are mandated to include automatic enrollment features, potentially increasing participation rates among employees.
7. Federal Employee Retirement Changes
FERS Annuity Calculation: Proposals suggest changing the Federal Employees Retirement System (FERS) annuity calculation from the highest three years of earnings to the highest five years, potentially reducing pension amounts.
Elimination of FERS Supplement: The FERS annuity supplement, which bridges the gap until Social Security eligibility, may be eliminated for early retirees.
Conclusions About the One Big Beautiful Bill Act (OBBBA)
This bill includes some sweeping changes, and while the future is uncertain, the potential impact on Medicare and Medicaid may pose the greatest risk to retirees and those nearing retirement. Broader economic effects are also worth watching.
As usual, build flexibility into your financial plans and run “what if” scenarios to understand how to cover yourself in various risk scenarios.
Regardless of how you feel about the One Big Beautiful Bill Act, now is a good time to get involved. Share your perspective with your Senator and make your voice heard.