Financial Concerns – How a U.S. government debt default would affect my military family

Right now, the U.S. political parties are at an impasse over raising the debt ceiling. According to the latest projections from the Treasury Department, the U.S. government could start defaulting on its debt as soon as 5 June (2023).

The U.S. government has never defaulted on its debt. If it were to do so now, the effects would be felt throughout the world, due in part to the use by other nations of U.S. Treasury bills and U.S. dollars. Not to mention possible effects on the U.S. stock markets and those reverberations globally.

Such brinksmanship has happened a few times previously in the U.S. And government shutdowns have also happened before (as they are threatened to possibly happen again now). But this time it feels different, for a couple of reasons.

My primary reason for concern is the bitter, unyielding, mean-spirited partisanship that we have seen on display in the Congress (and the U.S. writ large), for several years now. I no longer have confidence that politicians will be rational actors, concerned for the well-being of the nation. Instead, they prefer to fight like junkyard dogs, concerned only for their definition of “winning.”

My more immediate cause for concern is the fact that my primary bank, USAA, has previously given its members “guarantees” on their government pay during previous government shut-downs, in the form of depositing our paychecks, pensions, and disability checks as normal and making the funds available to us despite not having received the money (yet) from the government. This has been invaluable to many military families.

But USAA suffered its first ever loss last year ($1.3B net), and I don’t know whether they will again front us the money if the government shuts down, which would cause a serious liquidity issue for our family.

To be sure, USAA is not required to make funds available in our accounts which the U.S. government has not released. They have done so in the past as a courtesy. If they were unable or unwilling to do so this time, I would not hold that against them. But we would definitely have to tighten our belts!

Right now, military pension and VA disability are our only sources of income. Spousal Unit started teaching a course at the local college this year, but SU’s summer course didn’t get enough enrollment, so no teaching income this summer (right when it could matter most).

We are very fortunate that we have investments, which we could use to pay our bills, but we’d really rather not pay a higher tax bill this year because we needed to cash out some equities to cover an unexpected loss of income due to political shenanigans.

What about an emergency fund? Aren’t I always recommending one? Yes. Touché, dear reader. In fact, we had been in the process of rebuilding our emergency fund when this manufactured crisis reared its head. We currently have only 1-2 months of expenses in our emergency fund (which is still better than nothing!). The money lasting 1-2 months is predicated upon us turning off pay-in-full autopay on our credit cards (which we were using for home improvements) and only paying the minimum balances until the crisis is over.

We will also have to postpone the financial and physical help we were planning to extend to several family members this year. Financially, we can’t give what we don’t have, and the physical help would require travel plus the purchase of materials for the project, and that suddenly isn’t in the budget anymore.

Additionally, we are concerned about My Boomer Parent, who would lose their Social Security check if the government defaults on its debt and shuts down. We have always been financially secure enough to assist them until now, but losing all of our income could make us unable to help them this time. (Or, again, we could help them by dipping into our investments and paying a higher tax bill to cover government malfeasance.)

We have been living a comfortable FIRE lifestyle, cash-flowing our expenses from our secure military pension. But we have lived much more frugally in the past, so we have skills to draw upon.

Belt-tightening Measures: During the ride to my medical appointment this week, Spousal Unit and I discussed the expenses we could trim. Cable TV, which we’ve only had since I became chronically ill, would be first to go. We will also be eating down the pantry, which is full of staples like lentils, rice and beans, and the chest freezer, which is full of meat bought on sale, and only buying fresh produce from the store.

We also have some canned meat (chicken, tuna) in our pantry, as well as plenty of rice noodles. Proteins stretch further when served in dishes like soups, stews, stir-frys, casseroles, etc. [Learned that in Survival School!] So we’ll be stretching our meals with noodles, rice, beans, etc.

Thanks to a tip from the blogger known as Military Dollar, we have a stockpile of dehydrated refried beans in our pantry. They’re a great staple and we eat them at least once a week. All you have to do is add water and heat!

We can easily catch fresh fish here, which we have been eating about once a week – we can eat fish more often. We learned from Alaskans to substitute fish for other proteins in dishes like spaghetti or lasagna.

We don’t have much of a garden yet. We currently grow lemon grass, ginger, and pineapples. Growing more produce is something we’ve been wanting to do, though we don’t have much land. We will be able to harvest seagrapes once they mature late this summer. We typically make syrup from them, as we haven’t been able to make it set for jelly. We could probably also harvest coconuts from obliging neighbors. As long as we buy some limes, we should be able to prevent scurvy. 😉

We will also review our accounts for recurrent charges. We don’t have very many – we try to avoid monthly subscriptions – but it’s always good to periodically review as they can creep in.

Rainy season has begun in South Florida, so we will be watering our plants less, which should help reduce our water bill. Cutting cable TV will help with our electric bill. We have plenty of books to read, and can get more from our public library (including with the Libby app).

Other Income Streams: Spousal Unit will be teaching again in the Fall, which will bring in a little income. If necessary, they could teach more classes per semester, which would bring in more (non-federal) income. I could consider monetizing this blog. We could withdraw money from our investments. We will almost certainly use up our emergency fund.

Stop-Gap Measures: We could look at Home Equity Line of Credit (HELOC) interest rates and compare them to the interest rates on our credit cards. It might be cheaper to apply for a HELOC than to run up credit card bills, if the rates are more favorable. We could also look into loans against our equities, which I know very little about, but have learned about recently. We could also turn off the “reinvest interest and dividends” option on our investments, so that these would be paid to us directly, rather than being reinvested.

To be clear, Spousal Unit and I will be okay. It’s (hopefully) just a short-term liquidity issue. Many of my chronically ill/disabled friends will feel the pain of a default/shutdown much more direly, especially the ones whom the government prevents from having assets. I am acutely aware of our privilege.

I’m blogging about this for several reasons:

1. To reduce my stress by thinking through my options.
2. To highlight the effects of the default/shutdown on military families (and government employees, and seniors, and the disabled, and…)
3. To acknowledge that the current U.S. political climate is making me reconsider my retirement plan. Our military pension and VA disability benefits are not as fiscally secure as they once were.
4. To consider the ripple effects through our family if we can’t help family members due to our own lack of financial security. A big enough crisis takes down us all.

Bottomline: Given today’s political climate, it would behoove us to increase our emergency fund to 6-12 months worth of expenses, as a shock absorber, whenever we’re able to do that. In the meantime, we’ll brush off our extreme frugality knowledge and skills and tighten out belts. We’ll also explore stop-gap liquidity measures and re-evaluate our retirement plan.

Note: While I rarely talk about politics on this blog, as this post shows: personal finance doesn’t happen in a vacuum – politics are embedded in finance and vice versa.

Note: If you, too, need to tighten your belt, and you’d like some frugal ideas, I recommend The Tightwad Gazette books (also complied in one volume now as The Complete Tightwad Gazette), written by the Frugal Zealot, Amy Dacyczyn. She’s one of the OG’s of frugality, FIRE’d *before* FIRE was a movement, *and* did it all as an enlisted member’s military spouse. Her book(s) are chock-full of great frugal ideas.