When Congress fails to pass spending bills by Sept. 30 each year, the federal government must shut down nonessential services, closing many offices and furloughing employees until new funding passes. The good news: Historically, government shutdowns have had minimal impact on most Americans’ retirement stability.
Your Retirement Benefits
Social Security and Medicare are mandatory programs funded by your payroll taxes, held in separate trust funds and authorized permanently — not subject to annual budget battles.
- Social Security checks arrive on schedule.
- Medicare and Medicaid continue.
- VA benefits for veterans continue without interruption.
Investment Impacts
Despite concerns about shutdowns, history shows government shutdowns have rarely hurt retirement portfolios. Through 20 shutdowns since 1977, stocks and bonds showed minimal negative movement.
During Shutdowns:
- The S&P 500 has risen 55% of the time during shutdowns.
- During the longest shutdown (35 days in 2018-2019): The S&P 500 gained 10.3%.
After Shutdowns End:
- The S&P 500 was higher 86% of the time one year later.
- Average 12-month return following shutdowns: 16.95% since 1980.
Impact on Federal Workers and Retirees
Federal employees have always received full back pay after shutdowns since the 1970s, and a 2019 law now guarantees this protection.
If you’re still working for the federal government: During shutdowns, essential employees work unpaid while others are furloughed — but all receive back pay once funding resumes.
If you’re a retired federal employee: Your federal pension continues without interruption because it’s protected mandatory spending. Your health benefits under Federal Employee Health Benefits remain active.
FEDERAL WORKFORCE REDUCTION WARNING
During this shutdown, OMB has directed agencies to permanently eliminate positions deemed inconsistent with administration priorities through reduction-in-force actions, retaining only minimal staff for statutory functions.
What to Consider Now
While past shutdowns have rarely hurt retirees, future outcomes remain uncertain. Consider these three actions:
- Review Your Risk Tolerance: Shutdown volatility could exceed your comfort level. Position yourself for potential turbulence while aligning with your risk tolerance.
- Critical Timing for Near-Retirees: Market fluctuations just before or after retirement can permanently impact your nest egg. Preservation requires careful planning.
- Review Your Strategy: A thorough review helps prepare you for various scenarios and can provide lasting confidence. Government shutdowns bring heightened uncertainty, especially for those nearing retirement. Working with a trusted financial professional helps align your strategy with changing risks and maintain financial confidence.
