Debt Ceiling Angst: How to Protect Your Savings

You may be watching the debt ceiling battle in Washington and wondering whether you should take action to protect your bottom line amid the looming economic uncertainty. But many financial planners say sit tight, and they caution against radical shifting around of your retirement investments. At the same time, they suggest trying to have some extra cash on hand, especially if you depend on a government benefit check that may not arrive.

See also: What a default could mean for you.

As the political drama drags on in Congress, some economists predict that the United States will lose its cherished AAA credit rating, even if lawmakers agree on how to raise the debt ceiling and limit spending by the Aug. 2 deadline. A lower rating would likely mean higher borrowing costs for government agencies — and for you, too.

Historically low rates on everything from mortgages to car loans and credit cards would end. Businesses would have to pay more for loans in order to expand, and that could inhibit them from adding workers to their payrolls. Consequently, the nation's unemployment situation could worsen.

Depending on which economists you ask, losing the top credit rating could cause a jittery stock market to fall — or not.

Bump up for fixed income?

There is a silver lining, though a muted one. Analysts say interest rates on certificates of deposit, money market funds and bank accounts could rise, but probably only minimally, a boon to retirees who depend on such fixed income. Despite a bump up, rates are expected to remain relatively low, since inflation is low as well.

Financial planners are reporting an uptick in calls from clients asking what, if anything, they should do as the debt ceiling deadline draws near. For older investors, economists and planners seem to agree on at least two tactics.

• First, if at all possible, draft a plan for how you're going to get by if that crucial government benefit check doesn't arrive. President Obama has said that more than 70 million checks, from Social Security to veterans benefits, might not go out if the debt ceiling isn't raised. (Of course, many low-income households that depend on these checks will find it extremely difficult to make other arrangements.)

• Second, don't radically alter your savings portfolio unless your investments are already riskier than you're comfortable with.
  

Typically, stocks make up 20 to 60 percent of a portfolio for investors nearing retirement, financial planners say.

Next: Not altering your portfolio is OK. >>