Social Security and Medicare 2025 Trustees Reports: It’s Time to Address Funding Concerns
Each year, the Trustees of the Social Security and Medicare trust funds provide detailed reports to Congress that track the programs’ current financial condition and projected financial outlook. These reports have warned for years that the trust funds would be depleted in the not-too-distant future, and the most recent reports, released on June 18, 2025, show that Social Security and Medicare continue to face significant financial challenges.
The Trustees of both programs continue to urge Congress to address these financial shortfalls soon, so that solutions will be less drastic and may be implemented gradually. Americans agree — in a survey conducted last year, 87% of those polled said that Congress should act now to address Social Security’s funding shortfall, rather than waiting years to find a solution.1
Despite the challenges, it’s important to keep in mind that neither of these programs is in danger of collapsing completely. The question is what changes will be required to rescue them.
More retirees and fewer workers
The fundamental problem facing both programs is the aging of the American population. Today’s workers pay taxes to fund benefits received by today’s retirees, and with lower birth rates and longer life spans, there are fewer workers paying into the programs and more retirees receiving benefits for a longer period. In 1960, there were 5.1 workers for each Social Security beneficiary; in 2025, there are 2.7, a number that is projected to drop to 2.2 by 2045.
Dwindling trust funds
Payroll taxes from today’s workers, along with income taxes on Social Security benefits, go into interest-bearing trust funds. During times when payroll taxes and other income exceeded benefit payments, these funds built up reserve assets. But now the reserves are being depleted as they are used to supplement payroll taxes and other income to meet scheduled benefit payments.
Social Security outlook
Social Security consists of two programs, each with its own trust fund. Retired workers and their families and survivors receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program.
The OASI Trust Fund reserves are projected to be depleted in 2033, unchanged from last year’s report, at which time incoming revenue would pay only 77% of scheduled benefits. Reserves in the much smaller DI Trust Fund, which is on stronger footing, are not projected to be depleted during the 75-year period ending in 2099.
Under current law, these two trust funds cannot be combined, but the Trustees also provide an estimate for the hypothetical combined program, referred to as OASDI. This would extend full benefits to 2034, a year earlier than last year’s report, at which time, incoming revenue would pay only 81% of scheduled benefits.
This year’s report states that the January 2025 enactment of the Social Security Fairness Act of 2023 is projected to have a substantial effect on Social Security’s financial status. This law repealed the Windfall Elimination Provision and Government Pension Offset, and consequently, increased Social Security benefits for some people who worked in jobs not covered by Social Security.
Medicare outlook
Medicare also has two trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care under Medicare Part A. The Supplementary Medical Insurance (SMI) Trust Fund comprises two accounts: one for Medicare Part B physician and outpatient costs and the other for Medicare Part D prescription drug costs.
The HI Trust Fund will contain surplus income through 2027 but is projected to be depleted in 2033, three years earlier than in last year’s report. At that time, revenue would pay only 89% of the program’s costs. Overall, projections of Medicare costs are highly uncertain.
The SMI Trust Fund accounts for Medicare Parts B and D are expected to have sufficient funding because they are automatically balanced through premiums and revenue from the federal government’s general fund, but financing will need to increase faster than the economy to cover expected expenditure growth.
Note: The One Big Beautiful Bill Act, signed into law on July 4, 2025, may impact the Social Security and Medicare programs by reducing the income taxes on Social Security benefits that flow into the OASI and HI trust funds. Although the law did not change the rules for taxing Social Security benefits, the new senior deduction ($6,000 for single filers, $12,000 for joint filers) is likely to reduce the number of people who pay taxes on their benefits and reduce the marginal tax rate for those who do pay taxes. One estimate suggests that this could move the expiration dates for the OASI and HI trust funds up to 2032.2
Possible fixes
If Congress does not take action, Social Security beneficiaries might face a benefit cut after the trust funds are depleted, based on this year’s report. Any permanent fix to Social Security would likely require a combination of changes, including some of these.
- Raise the Social Security payroll tax rate (currently 12.4%, half paid by the employee and half by the employer). An immediate and permanent payroll tax increase to 16.05% would be necessary to address the long-range revenue shortfall (or to 16.67% if the increase started in 2034).
- Raise the ceiling on wages subject to Social Security payroll taxes ($176,100 in 2025).
- Raise the full retirement age (currently 67 for anyone born in 1960 or later).
- Change the benefit calculation formula.
- Use a different index to calculate the annual cost-of-living adjustment.
- Tax a higher percentage of benefits for higher-income beneficiaries.
Addressing the Medicare shortfall might necessitate a combination of spending cuts, tax increases, and cost-cutting through program modifications.
Based on past changes to these programs, it’s likely that any future changes would primarily affect future beneficiaries and have a relatively small effect on those already receiving benefits. While neither Social Security nor Medicare is in danger of disappearing, it would be wise to maintain a strong retirement savings strategy to prepare for potential changes that may affect you in the future.
You can view a combined summary of the 2025 Social Security and Medicare Trustees Reports and a full copy of the Social Security report at ssa.gov. You can find the full Medicare report at cms.gov.
All projections are based on current conditions, subject to change, and may not happen.
1) National Institute on Retirement Security, 2024
2) Committee for a Responsible Federal Budget, June 27, 2025
Tax and Spending Bill Signed into Law
President Trump signed into law the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, after months of deliberation in the House and Senate. The legislation includes multiple tax provisions that will guide individuals, business owners, and investors in planning their finances for many years to come. It makes permanent most of the 2017 Tax Cuts and Jobs Act (TCJA) tax provisions that were set to expire this year, while delivering some new deductions and changes.
Expiring provisions that are now permanent
| Tax brackets | The TCJA reduced the applicable tax rates for most brackets for the years 2018 through 2025, while increasing the income range covered by each bracket. The new legislation makes the TCJA rates and structure permanent. Individual marginal income tax brackets will remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. |
| Standard deduction | The new legislation makes permanent the larger standard deduction amounts established by TCJA, with an additional increase. For 2025, standard deduction amounts are: $31,500 for married filing jointly $23,625 for head of household $15,750 for single and married filing separately |
| Personal exemptions | The deduction for personal exemptions ($4,050 per exemption in 2017, the last year it was available) is now permanently eliminated. |
| Child tax credit | Prior temporary increases to the child tax credit, the refundable portion of the credit, and income phase-out ranges are made permanent. The child tax credit is increased to $2,200 for each qualifying child starting in 2025. |
| Mortgage interest deduction | The $750,000 ($375,000 for married filing separately) limit on qualifying mortgage debt for purposes of the mortgage interest deduction is made permanent. Interest on home equity indebtedness is now permanently nondeductible. A previously expired provision allowing for the deduction of mortgage insurance premiums as interest is reinstated and made permanent (subject to income limitations), beginning in 2026. |
| Estate and gift tax exemption | The larger estate and gift tax exemption amount (essentially doubled) implemented by the TCJA is made permanent, increased to $15 million in 2026 ($30 million for married couples), and will be indexed for inflation in subsequent years. |
| Alternative minimum tax (AMT) | The significantly increased AMT exemption amounts and exemption income phase-out thresholds implemented by TCJA are made permanent. |
| Itemized deduction limit | The overall limit on itemized deductions (the “Pease limitation”), previously suspended for 2018-2025, is now permanently replaced with a percentage reduction that applies to individuals in the highest tax bracket (37%) that effectively caps the value of each dollar of itemized deductions at $0.35. |
| Qualified business income deduction (Section 199A) | The new legislation permanently extends the deduction for qualified business income created by the TCJA and increases the phase-in thresholds for the deduction limit. A new minimum deduction of $400 is now available for certain individuals with at least $1,000 in qualified business income. |
Existing provisions with material changes
The One Big Beautiful Bill Act also makes some significant changes to other provisions, some temporary but others permanent. Two of the changes that received significant coverage leading up to passage and enactment include a temporary increase in the limit on allowable state and local tax (SALT) deductions and the rollback of existing energy tax incentives.
State and local tax (SALT) deduction
The new legislation temporarily increases the cap on the state and local tax deduction from $10,000 to $40,000. This increased cap is retroactively effective for 2025. The $40,000 cap will increase to $40,400 in 2026 and by 1% for each of the following three years.
The cap is reduced for those with modified adjusted gross incomes exceeding $500,000 (tax year 2025, adjusted for inflation in subsequent years), but the limit is never reduced below $10,000.
In 2030, the cap will return to $10,000.
Repeal and phase-out of clean energy credits
The new legislation significantly rolls back energy-related tax incentives. Provisions include:
- The Clean Vehicle Credit (IRC Section 30D), the Previously Owned Clean Vehicle Credit (IRC Section 25E), and the Qualified Commercial Clean Vehicles Credit (IRC Section 45W) are eliminated effective for vehicles acquired after September 30, 2025.
- The Energy Efficient Home Improvement Credit (IRC Section 25C) and the Residential Clean Energy Credit (IRC Section 25D) are repealed for property placed in service after December 31, 2025.
- The New Energy Efficient Home Credit (IRC Section 45L) will expire on June 30, 2026; the credit cannot be claimed for homes acquired after that date.
- The Alternative Fuel Vehicle Refueling Property Credit (IRC Section 30C) will not be available for property placed in service after June 30, 2026.
Gambling losses
The new law changes the treatment of gambling losses, effective as of 2026. Before the legislation, individuals could deduct 100% of their gambling losses against winnings (the deduction could never exceed the amount of gambling winnings); now, a new cap limits deductions to 90%.
Bonus depreciation and Section 179 expensing
Prior to this legislation, the additional first-year “bonus” depreciation was being phased out, with the maximum deduction dropping to 40% by 2025. The new legislation permanently establishes a 100% additional first-year depreciation deduction for qualifying property, allowing businesses to deduct the full cost of such property immediately. The 100% additional first-year depreciation deduction is available for property acquired after January 19, 2025.
Effective for property placed in service in 2025, the legislation also increases the limit for expensing under IRC Section 179 from $1 million (indexed for inflation) to $2.5 million, and it increases the phase-out threshold from $2.5 million (indexed for inflation) to $4 million.
New provisions
The One Big Beautiful Bill Act also contains multiple new tax deductions that are intended to represent a step toward fulfilling campaign promises made to end taxes on Social Security, tips, and overtime. These new deductions are temporary, but other changes, like allowing individuals who do not itemize deductions to deduct some amount of qualifying charitable contributions, are permanent.
Deduction for seniors
Effective for tax years 2025–2028, the legislation creates a new $6,000 deduction for qualifying individuals who reach the age of 65 during the year. The deduction begins to phase out when modified adjusted gross income exceeds $75,000 ($150,000 for married filing jointly).
Tip income deduction (“no tax on tips”)
Effective for tax years 2025–2028, for the first time, tip-based workers can deduct a portion of their cash tips for federal income tax purposes. Individuals who receive qualified cash tips in occupations that customarily received tips prior to January 1, 2025, may exclude up to $25,000 in reported tip income from their federal taxable income. A married couple filing a joint return may each deduct up to $25,000. The deduction phases out at a modified adjusted gross income of $150,000 for single filers and $300,000 for joint filers. This provision applies to a broad range of service occupations, including restaurant staff, hairstylists, and hospitality workers.
Overtime deduction (“no tax on overtime”)
A new temporary deduction of up to $12,500 ($25,000 if married filing jointly) is established for qualified overtime compensation. The deduction is phased out for individuals with a modified adjusted gross income of over $150,000 ($300,000 if married filing jointly). The deduction is reduced by $100 for each $1,000 of modified adjusted gross income exceeding the threshold. To claim the deduction, a Social Security number must be provided. The deduction is available for tax years 2025–2028.
Investment accounts for children (“Trump accounts”)
A new tax-deferred account for children under the age of 18 is created, effective January 1, 2026. With limited exceptions, up to $5,000 in total can be contributed to an account annually (the $5,000 amount is indexed for inflation). Parents, relatives, and employers, as well as certain taxable, nonprofit, and government organizations, may make contributions. Contributions are not tax-deductible. For children born between 2025 and 2028, the federal government will contribute $1,000 per child into eligible accounts. Distributions generally cannot be made from the account prior to the account holder reaching the age of 18, and there are restrictions, limitations, and tax consequences that govern how and when account funds can be used. To have an account, a child must be a U.S. citizen and have a Social Security number.
Charitable deduction for non-itemizers
The legislation reinstates a tax provision that was previously effective for tax year 2021. A deduction for qualifying charitable contributions is now permanently established for individuals who do not itemize deductions. The deduction is capped at $1,000 ($2,000 for married filing jointly). Contributions must be made in cash to a public charity and meet other specific requirements. This deduction is available starting in tax year 2026.
Car loan interest deduction (“no tax on car loan interest”)
For tax years 2025–2028, interest paid on car loans is now deductible for certain buyers. Beginning in 2025, taxpayers who purchase qualifying new vehicles assembled in the United States for personal use may deduct up to $10,000 in loan interest annually. The deduction is phased out at higher incomes, starting at a modified adjusted gross income of $100,000 (single filers) or $200,000 (joint filers).
There’s more …
The One Big Beautiful Bill Act includes broad and sweeping changes that will have a profound impact. While income and estate tax provisions are highlighted here, the legislation also makes fundamental changes impacting areas such as health care, immigration, and border security. There are also additional tax changes made by the legislation that are not mentioned in this summary. Additional information and details will be available in the coming weeks and months. As always, if you have questions about how these changes affect your specific situation, consider consulting a tax professional.
Online Shoppers May Be in Store for Surprises in the Tariff Era
On April 2, 2025, President Trump issued an executive order eliminating the de minimis exemption for low-value imports from China, which previously allowed U.S. consumers to buy goods worth up to $800 directly from online marketplaces based outside of the United States without paying duties. Since the order took effect on May 2, some U.S. shoppers have been surprised by notices from shipping carriers requesting duties that in some cases surpassed the value of the items that were ordered.1
A tariff is a tax on imported goods that the Trump administration has imposed to help protect domestic industries from foreign competition, raise revenue, and use as a bargaining chip in trade negotiations. The term “duty” refers more broadly to multiple types of fees that must be paid by importers when goods are shipped across borders. Depending on the type of product and where it originated, this amount might include tariffs, customs brokerage fees, excise taxes, and/or other miscellaneous charges.
U.S. lawmakers raised the de minimis exemption from $200 to $800 in 2015. As a result, many Americans have become accustomed to shopping for low-value goods such as clothing and housewares without considering where their purchases are shipped from or the prospect of duties. Many other countries, including members of the European Union and Canada, have lower thresholds, so the consumers who live there may already expect to pay duties when goods are ordered from e-commerce sites outside of their home country.2
Critics of the de minimis exemption believe that it disadvantages U.S. manufacturers and retailers and creates a loophole for dangerous and illegal products such as fentanyl and counterfeit luxury goods to enter the United States with less scrutiny.3
Tax rates in flux
Effective May 14, goods valued at $800 or less that are shipped through the U.S. Postal Service to the United States from China or Hong Kong are subject to a tariff rate of 54% of their value or an optional flat rate of $100 per package. Chinese goods shipped by commercial carriers are assessed the default 30% tariff rate, even for low-value packages.4
Back in early May, the tariff on low-value Chinese goods sent through international mail was a punishing 120%, and the default tariff rate that applied to commercial carriers was even higher (145%), until a round of positive trade negotiations resulted in the de-escalation of tensions between the two nations.
While President Trump’s executive order only applies to goods from China, it appears to be just a first step toward ending duty-free de minimis privileges entirely. In fact, a provision in the Big Beautiful Bill passed by Congress and signed by the president on July 4 eliminates de minimis entries from all countries beginning July 1, 2027.5 As a result, shopping internationally could get even trickier, especially if Trump’s threatened reciprocal tariffs, which vary by specific trade partner, are still in the picture.
On May 28, the U.S. Court of International Trade ruled that President Trump had exceeded his authority under the International Emergency Economic Powers Act (IEEPA) when he imposed broad tariffs on goods from nearly every country, including China. This decision likely extended to the status of the de minimis exemption, but the case was appealed to a higher court that granted a temporary stay, so for the time being the president’s IEEPA tariffs and related trade policies remain in effect.6 Regardless of the outcome for tariffs, the fate of the de minimis exemption itself probably won’t be decided in the courts now that Congress has passed a law that settles the issue.
Shopping online? Take a closer look before you click
When you shop on a U.S.-based e-commerce site, whether it’s a small business or a behemoth like Amazon, the duties on imported Chinese goods have already been paid and are likely to be reflected in the item’s price. Some portion of the tariffs paid by the retailers is typically passed along to consumers, so the potential for higher prices across the board — especially for big-ticket purchases such as cars, electronics, and appliances — might be one of your top concerns.
It’s also worth considering that you could unknowingly trigger exorbitant duties for relatively inexpensive online purchases if you respond to a targeted ad or come across a product offered by an unfamiliar online marketplace. One complicating factor is that the duties apply to goods that originate in China, even if they are sold online and shipped to the United States by a company based in a different country (like Canada or the United Kingdom). Before placing an order, check the website or ask customer service where the product ships from. If the order won’t be fulfilled in the United States, go a step further to determine where the product was made (the country of origin).
When U.S. duties apply to an item in your online shopping cart, the best you can hope for is transparency from the seller, so you can make an informed decision before completing the sale. You might see a reference to delivered duty paid (DDP) shipping, which typically means the duties will be included in your charges during the checkout process and paid by the shipper. Delivered duty unpaid (DDU) or tax unpaid shipping means you should expect to receive a bill from the carrier.
If you are caught off guard by duties for an online order, you could choose to pay the duty or refuse the package. Keep in mind that depending on the company’s return policies, you might be charged for return shipping or may not receive any refund at all. Unexpected duties may become less frequent in time as international sellers and carriers refine their policies and procedures in response to shifting trade rules. But unfortunately for consumers, the higher costs that tend to follow the imposition of steep tariffs might be here to stay.
1) The New York Times, June 12, 2025
2) New York Magazine, April 24, 2025
3) The New York Times, May 1, 2025
4) Time Magazine, May 14, 2025
5) The Wall Street Journal, July 2, 2025
6) The Wall Street Journal, June 11, 2025
What tax legislation is in the works?
The One Big Beautiful Bill Act
H.R. 1, the One Big Beautiful Bill Act, narrowly passed the House of Representatives on May 22, 2025. The legislation is now being deliberated in the Senate, after the Senate Committee on Finance released its own version of proposed tax provisions on June 16, 2025.
This legislation is being proposed and considered as part of a process known as budget reconciliation, which is generally limited to tax and spending matters, as well as the debt limit. The budget reconciliation process limits debate, preventing the use of the filibuster to delay or prevent passage. Whereas 60 votes are required to break a filibuster and pass most legislation, budget reconciliation requires only 51 votes in the Senate. The following are some of the act’s provisions that could affect income taxes for individuals and businesses.
Tax Cuts and Jobs Act provisions made permanent
The legislation would make permanent many provisions implemented by the 2017 Tax Cuts and Jobs Act, which are scheduled to expire at the end of this year. These include:
- Lower marginal income tax rates, with a top marginal tax rate of 37%
- Increased standard deduction amounts
- Elimination of deduction for personal exemptions
- Increased Child Tax Credit (some additional changes proposed)
- Limits on mortgage interest deductions and interest on home equity debt
- Higher estate and gift tax exemption
- Alternative Minimum Tax (AMT) exemption and phaseout thresholds
- Changes relating to itemized deductions
- Section 199A Qualified Business Income Deduction
Other changes
The legislation includes a host of additional tax provisions, such as:
- Raising the U.S. debt limit
- Additional deduction for seniors for years 2025–2028, phased out at higher incomes
- New tax-exempt investment accounts (“Trump Accounts”) for children
- State and Local Tax (SALT) deduction; while the House version would significantly increase the cap, the Senate version appears to retain the current $10,000 cap
- New deduction for qualified tips
- New deduction for qualified overtime compensation
- New deduction for personal interest on car loans (2025–2028, U.S.-assembled passenger vehicles)
- New charitable deduction for individuals who do not itemize deductions
- Repeal of energy tax credits created by the Inflation Reduction Act
- Bonus depreciation increased to 100% and Section 179 expense limit increased
What happens next?
The Senate Committee on Finance report already reflects some departures from the House version, including differences relating to the SALT deduction mentioned above, as well as the tax treatment of tips and overtime. The legislation is subject to review by the Senate parliamentarian for compliance with reconciliation rules, and the final Senate version of the legislation must be debated on the Senate floor. If the Senate passes its version of the legislation, the House will need to vote again since the Senate version will include changes.
Buffett Takes a Bow: 7 Lessons from an Iconic Investor
At the age of 94, Warren Buffett recently announced his retirement as CEO of Berkshire Hathaway, the massive holding company he has controlled since 1965.1
Buffett is a venerated investor due to his financial success and long track record of stock market outperformance. The value of Berkshire Hathaway shares grew by 19.9% per year (annualized) over the six decades from 1965 to 2024, compared with a total return of 10.4% per year for the S&P 500 Index over the same period.2
Buffett’s investment strategy evolved into a blend of quality and value — which means he identifies well-run companies with solid balance sheets that are priced fairly based on their intrinsic value (the earnings and cash flow that the underlying business produces for shareholders).3 Having bought his first stock at age 11, he became known for diligent research and diving deep into the financial statements of his businesses and acquisition targets.4
Nicknamed the “Oracle of Omaha,” Buffett has frequently shared his thoughts on finance and investing in media interviews, at Berkshire’s annual meetings (often called the “Woodstock of Capitalism”), and in his widely read letters to shareholders. As a result, his admirers have access to a treasure trove of investment fundamentals and words of wisdom that might help improve their own financial lives.
Here are seven important financial lessons to be gleaned from a selection of Warren Buffett’s notable quotes.5
1. Keep your lifestyle in check, so you can put money to work
“Do not save what is left after spending; instead spend what is left after saving.”
Despite his billionaire status, Buffett lives in the same modest house in Omaha that he has owned since 1958.6 Automatically diverting a set portion of every paycheck to a savings account, workplace retirement plan, or an IRA is a convenient way to save money you might otherwise be tempted to spend on a more expensive home or car. These savings could then be invested to help reach future goals.
2. Play the long game
“Buy into a company because you want to own it, not because you want the stock to go up.”
In Buffett’s view, investors should have an ownership mindset rather than thinking like a speculator. Speculators take large risks by trying to anticipate future price movements in hopes of making quick gains. The problem with this approach is that few people have the expertise, time, and resources to do this successfully. It’s more likely that by trying to time the market, they will sell at the bottom and buy at the top. They might miss some of the best trading days, and their portfolios will likely underperform.
Long-term investors take risks, too, but generally they buy quality assets and strive to build a balanced portfolio that is appropriate for their goals, time frame, and risk tolerance.
3. Evaluate your exposure to risk
“Only when the tide goes out do you discover who’s been swimming naked.”
Market risk refers to the possibility that an investment will lose value because of a broad decline in the financial markets caused by unexpected economic or sociopolitical developments. It would be prudent for the risk profile of your portfolio to align with your risk tolerance, or your ability to endure periods of market volatility, both financially and emotionally. This typically depends on your current financial position as well as your age, future earning potential, and time horizon — the length of time before you expect to tap your investment assets for specific financial goals.
4. Be brave when the market is scary
“Be fearful when others are greedy and greedy when others are fearful.”
The silver lining of a steep market downturn is the opportunity to buy quality stocks that you may have longed to own at much lower prices, just as Buffett did in the depths of the 2008 financial crisis.7
5. Hold on to humility
“In the business world, the rearview mirror is always clearer than the windshield.”
Buffett is willing to acknowledge his blind spots and admit his past missteps. In his latest letter to shareholders, he pointed out that he used the words “mistake” or “error” 16 times in his communications during the 2019 to 2023 period.8
Some investors (professionals and amateurs alike) overestimate their skills, knowledge, and ability to predict probable outcomes. But there’s danger in overconfidence; it may cause you to trade excessively and/or downplay potential risks.
6. Take care of the people who matter to you
“Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.”
A thoughtful estate plan is more than a set of documents to pass down wealth and help reduce potential estate taxes after you die. It can be crafted to reflect your values, leave a positive legacy through philanthropy, and help protect your loved ones in your absence. Plus, by clearly stating your intentions in a will or trust, you can help family members prevent disputes during a painful and stressful time.
7. Don’t go it alone
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.”
Even the most experienced investors might benefit from an outside perspective. A trusted financial professional can help you develop an investment strategy that’s tailored to your specific situation, while providing ongoing support that may help keep you from making costly, emotion-driven mistakes.
Although there is no assurance that working with a financial professional will improve investment results, a financial professional can provide education, identify strategies, and help you consider options that could have a substantial effect on your long-term financial prospects.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 is an unmanaged group of securities that is considered representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance does not guarantee future results. Actual results will vary.
1, 4) The Wall Street Journal, May 3, 2025
2–3) Bloomberg, May 4, 2025
5) Goodreads.com, 2025; Wikiquote.org, 2025; BrainyQuote.com, 2025; AZQuotes.com, 2025
6–7) Bloomberg, May 3, 2025
8) Letter to Berkshire Hathaway shareholders from Chairman Warren E. Buffett, 2025
Moody’s Downgraded U.S. Debt: Does It Matter?
Moody downgraded its rating on U.S. government long-term debt from its highest rating of Aaa to the next highest rating of Aa1. The move was particularly significant because Moody’s was the last of the Big Three credit rating agencies to maintain the triple-A rating for U.S. debt. S&P Global Ratings made a similar downgrade in 2011, and Fitch Ratings did so in 2023.1
The reason for the downgrade was the same for all three agencies — excessive, growing debt in relation to revenues. Moody’s indicated that its recent action was driven by the long-term trend of “large annual fiscal deficits and growing interest costs” coupled with the lack of potential relief in sight. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.” The agency pointed specifically to the current effort in Congress to extend provisions of the 2017 Tax Cuts and Jobs Act, which it estimated would add about $4 trillion to the federal primary deficit (excluding interest payments) over the next decade.2
For perspective, the Congressional Budget Office projected in January 2025 that federal debt held by the public would grow from 100% of gross domestic product (GDP) in 2025 to 118% in 2035, the largest percentage in U.S. history. This projection assumed that the 2017 tax cuts would not be continued and would thus increase revenue, which does not appear likely.3
Still-stable securities
The Moody’s announcement drove Treasury yields higher temporarily, because in theory bond investors demand higher interest rates in return for taking on more risk.4 However, despite the downgrade, there is no expectation of default, because the federal government guarantees U.S. Treasury securities as to the timely payment of principal and interest. The U.S. dollar will likely remain the world’s dominant reserve currency for the near future, meaning that nations, organizations, and individuals will continue to need and/or want to hold U.S. Treasury securities.5
As Moody’s pointed out: “The U.S. economy is unique among the sovereigns [nations] we rate. It combines exceptionally large scale, high average incomes, strong growth potential and a record of innovation that supports productivity and GDP growth. While GDP growth is likely to slow in the short term as the economy adjusts to higher tariffs, we do not expect that [U.S.] long-term growth will be significantly affected.”6
Some experts believe that U.S. government debt is so unique that credit ratings are irrelevant, and an analysis of the rules for holding securities in certain types of funds or other financial situations suggests that this is true. Whereas a downgrade of another country’s debt might prevent that country’s bonds from being utilized in a fund or as collateral in a particular situation, U.S. government securities are generally considered a class of their own regardless of credit rating.7
Higher yields
Even so, some investors might be more cautious about buying U.S. securities, which could keep yields slightly higher than they might have been without the downgrade. Yields were already on the high side in response to other factors, including the elevated federal funds rate and economic uncertainty due to changing tariff policies. These factors, along with budget developments, will likely continue to be the primary drivers of Treasury yields.
Higher Treasury yields, for whatever reason, are good for investors who want stable income. But they can be bad for consumers, because rates on some consumer loans — notably 30-year fixed mortgages — are tied to Treasury yields.8
The U.S. government may be hardest hit, because it must use a larger percentage of revenues to pay interest. Due to higher rates as the Fed has battled inflation, federal interest payments have risen from about 9% of revenues in 2021 to 18% in 2024 and are projected to require as much as 30% of revenues by 2035.9
Good news and bad news
The good news is that the Federal Reserve can generate funds, essentially “printing money” electronically, to ensure the government can pay its debts. This is why Treasury securities are still considered the world’s most stable investment. But the current path of ever-higher deficits is a slippery slope, and lawmakers face hard choices to steady the U.S. fiscal outlook.
There is always talk about cutting spending, and the Trump administration is making some efforts to do so. However, the impact of these cuts on the deficit and debt should be relatively small. About 60% of the U.S. budget in fiscal year 2025 is mandatory spending, including Social Security and Medicare. Only 26% is discretionary spending, including 12% for defense, which few want to cut. That leaves 14% for possible budget cuts, much of which pays for programs that many Americans value. The rest of federal spending pays interest on the national debt.10
Any substantive fiscal fix will have to include additional revenues, but raising taxes is always difficult politically, and a major economic boom that would bring in more revenue at current tax rates seems unlikely, based on current projections.11 The new tariff program is intended in part to help raise revenues, but it is too early to know whether that will happen.
For now, the credit downgrade should have little or no effect on the U.S. economy and is unlikely to require changes to your investment strategy. Other factors will continue to drive the economy. As always, a wise investment strategy would be designed to weather economic changes and focus on personal goals, time frame, and risk tolerance.
The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid. Projections are based on current conditions, subject to change, and may not happen.
1) The Wall Street Journal, May 16, 2025
2, 5–6, 9) Moody’s Ratings, May 16, 2025
3, 10–11) Congressional Budget Office, January 2025
4, 8) CNBC, May 19, 2025
7) Bloomberg, May 19, 2025
The Cost of Building a New Home in the U.S.
Following is a breakdown of the average cost of building a new single-family home in the United States in 2024 by stages of construction. The data is based on a survey of 4,000 U.S. home builders by the National Association of Home Builders (NAHB).
Home construction breakdown: what costs the most?
Building a new home is a major undertaking that involves many moving parts, from laying the initial foundation to giving the house its final touches. In 2024, the average cost of constructing a new home was $428,215, the highest level recorded by the NAHB since it began its annual cost surveys in 1998. This equates to around $162 per square foot of finished floor space, with the average home spanning 2,647 square feet in 2024.
A breakdown of what work and materials are included in each stage of the building process are:
- Site work — Building permit fees, impact fee, water and sewer fees, inspections, architecture, engineering; share of construction cost: 7.6%
- Foundations — Excavation, foundation, concrete, retaining walls, backfill; share of construction cost: 10.4%
- Framing — Framing (including roof), trusses, sheathing, general metal and steel; share of construction cost: 16.6%
- Exterior finishes — Exterior wall finish, roofing, windows and doors; share of construction cost: 13.4%
- Major systems rough-ins — Plumbing and electrical (except fixtures), HVAC; share of construction cost: 19.2%
- Interior finishes — Insulation, drywall, interior trims, doors, mirrors, painting, lighting, cabinets and countertops, appliances, flooring, plumbing fixtures, fireplace; share of construction cost: 24.1%
- Final steps — Landscaping, outdoor structures (deck, patio, porches), driveway, clean up; share of construction cost: 6.5%
- Other — share of construction cost: 2.1%
Figures do not add to 100% due to rounding.
The U.S. housing construction market in 2025
The outlook for U.S. residential construction in 2025 looks constrained due to various factors. According to the NAHB, builder confidence remains relatively low due to higher material costs, with tariffs by the Trump administration threatening further cost increases.
Meanwhile, home construction starts have been relatively stable since 2021, but the number of new homes available for sale is at the highest level since 2010, suggesting a lack of demand for new housing amid high borrowing costs.
As affordability concerns persist, some builders are offering price reductions and sales incentives (such as mortgage buydowns) to attract new buyers.
Forecasts are based on current conditions, are subject to change, and may not happen.
Borrowers in Default on Federal Student Loans Face Imminent Collection Efforts
On April 21, 2025, the U.S. Department of Education announced that it will resume collections on defaulted federal student loans starting May 5, 2025. The federal government hasn’t collected on defaulted loans since March 2020. Here is some background followed by answers to questions about the new policy.
A history of payment pauses and court challenges
The coronavirus pandemic ushered in a series of student loan payment pauses for federal loan borrowers starting in March 2020. In August 2022, then-President Biden signed an executive order canceling up to $10,000 of federal student loan debt ($20,000 for Pell Grant recipients) for certain borrowers, an order that was subsequently struck down by the U.S. Supreme Court. In June 2023, Congress officially ended the student loan payment moratorium, and the Department of Education announced that federal student loan payments would resume in October 2023. Around the same time, the Department created the Saving on a Valuable Education (SAVE) Repayment Plan, which offered borrowers lower monthly payments and a faster path to loan forgiveness. After SAVE passed, it faced multiple legal challenges and was eventually blocked by a federal appeals court in August 2024, leaving many borrowers in repayment limbo.
To whom does this new enforcement policy apply?
In its April 21 announcement, the Department of Education noted the following statistics:
- 42.7 million federal student loan borrowers owe more than $1.6 trillion in student debt
- More than five million borrowers have not made a monthly payment in over 360 days and are in default
- Four million borrowers are in late-stage delinquency (91–180 days)
The new collections policy technically applies to all 42.7 million borrowers but will most immediately affect the five million borrowers who are currently in default and the four million borrowers who are close to default.
Note: Different federal student loans may have different rules on when default status is reached. You can visit the federal student aid website for more information.
What will happen to borrowers in default?
Starting May 5, 2025, the Education Department will refer all borrowers whose federal student loans are in default to a federal debt collection service (the Treasury Offset Program) administered by the Treasury Department. Before that date, all borrowers in default should receive email communications from the Office of Federal Student Aid (FSA) encouraging them to start making payments, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
Borrowers (whether student or parent) who are unable to make payments after “sufficient notice and opportunity” will be subject to involuntary collections, which could include wage garnishment. The FSA office expects to send required notices to borrowers about wage garnishment later this summer. Wage garnishment means borrowers in default could see automatic deductions from their paychecks to cover loan payments. Borrowers delinquent on their student loans (missing a payment for 90 days or more) also risk a negative impact to their credit score, which can make it harder to rent an apartment (if a credit check is required) or obtain a credit card, car loan, or mortgage.
Over the next two months, the FSA office plans to send borrowers ongoing email communications with additional information and resources, including an enhanced loan simulator tool, extended call times at loan servicers, and a streamlined income-driven repayment process that will shorten enrollment times and eliminate the need for annual income recertification. More information will be available on the federal student aid website in the coming weeks.
Source: U.S. Department of Education, April 21, 2025
New Tariffs Drive Market Volatility
April 2, 2025, President Trump announced sweeping tariffs on imported goods that were significantly larger and different in structure than expected. The announcement was carefully timed to coincide with the close of the New York Stock Exchange to avoid immediate market volatility. But over the next two days, the S&P 500 — generally considered representative of the U.S. stock market — plunged by 10.5%. The Dow Jones Industrial Average lost 9.3%, and the tech-heavy NASDAQ index dropped 11.4%.1 The two-day rout erased $6.6 trillion in market value, the largest two-day shareholder loss in U.S. history.2
Market volatility continued on Monday, April 7, with prices swinging widely throughout the day, but the final results were more moderate. The S&P 500 dropped slightly by 0.23%, the NASDAQ was up slightly by 0.10%, and the Dow fell 0.91%.3
Obviously, a quick market drop is cause for concern, but it’s important not to overreact and to maintain a steady eye on long-term goals. It may be helpful to consider the causes of the current market volatility along with a longer-term view of market trends.
A surprising approach
The tariffs announced on April 2 were promised as a program of “reciprocal tariffs,” which are traditionally defined as matching the tariffs other countries levy on U.S. goods and theoretically leveling the playing field. Determining reciprocal tariffs typically requires exhaustive analysis of a complex web of global trade rules on tens of thousands of products. Investors hoped for a moderate, measured program, and it’s notable that the S&P 500 actually rose steadily in the three trading days before the announcement.4
The tariffs the president announced took investors by surprise. They were not reciprocal tariffs by the traditional definition but rather based on the trade deficit in goods between the United States and a given country. Trade in services, in which the United States often has a surplus, was not considered.
Specifically, the tariff was calculated based on the ratio of the country’s 2024 goods trade deficit with the United States to the total value of its goods exports to the United States, multiplied by one half. Thus, if Country A sold $200 billion in goods to the United States and bought $100 billion in U.S. goods, the deficit was $100 billion, and the tariff was calculated as $100B/$200B = 50% x ½ = 25% tariff. Nearly, all countries were assessed a minimum 10% tariff, regardless of the balance of trade, but Canada and Mexico, which already have substantial tariffs due to previous actions, are exempt from the new round. Other exceptions include Russia and North Korea, which are under trade sanctions.5
The Trump administration maintains that this calculation will close trade deficits, but most economists believe that such deficits are not necessarily bad or the result of unfair trading practices — and the calculation resulted in unexpectedly high new tariffs.6 The European Union, which provides almost one-fifth of U.S. imports, was assessed a 20% tariff, while China was assessed 34% on top of the recent 20% boost and other tariffs already in place. Other important sources of imports with high new tariffs include Vietnam (46%), Taiwan (32%), India (27%), South Korea (26%), and Japan (24%).7 Tariffs on most countries are now higher than the tariffs they charge for U.S. goods, and even countries that buy more U.S. goods than they sell, such as Australia and Argentina, will still pay the 10% minimum tariff.8–9
Concerns and potential revenue
There is an adage that the market doesn’t like surprises, and part of the market reaction was due to the unusual approach, with an untried calculation, higher-than-expected tariffs on many trading partners, and a minimum tariff on nearly every country of the world. But there is also a fundamental concern that these tariffs, on top of previously levied tariffs, will increase consumer prices to a level that seriously slows consumer spending, the driving force of the U.S. economic engine. Higher import prices can also hurt U.S. companies that depend on imported materials and parts, while retaliatory tariffs and other economic sanctions could hurt U.S. companies that export goods and/or do business abroad.
On the other hand, the Trump administration’s stated goals are to stimulate U.S. manufacturing, address unfairness in international trade, and increase U.S. revenue, which could be used to decrease other taxes. Trump economic advisor Peter Navarro estimated that the tariffs could raise more than $6 trillion over ten years. This estimate is likely on the high end, because it assumes that tariffs, trade, and consumer behavior will not change. But revenue approaching that level could pay for extending the 2017 tax cuts, which are scheduled to expire at the end of 2025 and could decrease revenue by about $4.5 trillion over the next ten years if extended.10
Moreover, the tariffs as announced may be intended in part as a starting point for negotiations. President Trump and Vietnam’s leader, To Lam, have already begun discussions, with Lam offering to reduce his country’s tariffs on U.S. goods to 0% in return for reduction of the U.S. tariffs. It’s likely that there will be negotiations with many key U.S. trading partners as the tariff program evolves.11
Investing for the long term
Although it is impossible to predict the market, you can probably expect volatility for some time. The NASDAQ Index officially entered a bear market — a loss of at least 20% from a previous high — at the end of trading on April 4, while the S&P 500 Index — down more than 17% from its recent high — is approaching bear territory.12–13 While any substantial decline can be worrisome for investors, it’s important to remember that markets are cyclical. Regardless of the reasons for a downturn, the market has always bounced back. Here are some other considerations that may help provide perspective:
- After a down year in 2022, the S&P 500 gained 24.23% in 2023 and 23.31% in 2024, the largest two-year increase since 1998.14–15 Although 2025 has been rocky, the index set an all-time record on February 19, 2025, after the initial round of tariffs was announced.16 So the current market turmoil is coming after a period of unusual strength. While it may be disturbing to watch the value of your investments decline, the current drop is from a high level, and the current value of your portfolio might be similar to what it was at a time when the value seemed satisfying.
- The losses you see in your investment account are only paper losses until you sell. Panic selling locks in those losses. Historically, some of the best days of stock market performance have followed some of the worst days. No one can predict market direction, and pulling out of the market due to an emotional reaction can lead to missing gains on the way back up.
- A down market can offer buying opportunities, but no one knows when the market has reached bottom, so — as with selling — purchasing decisions should be made rationally based on a long-term strategy.
- Since 1928, the S&P 500 Index (including an earlier version) has returned an annual average of about 10%, but annual returns have varied widely.17 Over 97 years, there have been 65 positive years, 30 negative years, and two flat years.18
- During this same period, there have been 24 S&P 500 bull markets (not counting the current bull) and 23 bear markets. The average bull market lasted 1,102 days and had a positive return of 121.4%. The average bear market lasted 340 days and had a negative return of -36.8%.19 Put simply, bulls have lasted longer than bears, and bull gains have substantially eclipsed bear losses.
Past performance is not a guarantee of future results, but the clear message in these statistics is that it pays to be patient and stick to your long-term strategy. This is true during any period of market volatility, but the current situation — primarily driven by the reciprocal tariff regimen — is still so new and subject to change, it may be unwise to place too much emphasis on the initial market reaction. Even if the president maintains the current trade policy, the U.S. economy and the U.S. stock market have proven time and time again to be resilient and adaptable to changing economic conditions.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. The S&P 500 Index is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.
1, 3–4, 13, 16) Yahoo Finance, April 7, 2025
2) Morningstar, April 4, 2025
5, 7, 9) The New York Times, April 4, 2025
6, 8) The Wall Street Journal, April 7, 2025
10) CNBC, April 2, 2025
11) The New York Times, April 6, 2025
12) Reuters, April 4, 2025
14) S&P Global Indices, 2025
15) MarketWatch, December 31, 2024
17) Investopedia, December 26, 2024
18) www.macrotrends.net, 2025
19) Yardeni Research, January 21, 2024
Tariff Turmoil or Economic Signal? The Makings of a Stock Market Correction
The S&P 500 Index landed in correction territory after a swift three-week drop of more than 10% from its February 19 record high. The NASDAQ index suffered an official correction a week earlier, having fallen over several months from its most recent peak in December 2024.1
President Trump’s rapid, on-and-off implementation of tariffs and the escalating trade war it sparked unsettled the financial markets. Meanwhile, the U.S. economy, which had appeared to be pulling off a soft landing, began to flash warning signs.2
Tariffs taking effect
A tariff is a tax on imported goods that is used to help protect domestic industries from foreign competition, raise revenue, or as a tool in trade negotiations. Tariffs are a key component of the president’s trademark America First policy, as they are intended to incentivize businesses to produce goods in the United States.
New 20% tariffs on imported goods from China (now totaling about 30%) have already taken effect, along with a 25% tariff on all imported steel and aluminum. Threatened 25% tariffs on imports from Mexico and Canada were paused until April, which is when a round of reciprocal tariffs on specific U.S. trading partners could be announced.3
Canada and the European Union (EU) have responded with reciprocal tariffs on specific U.S. products, and Canadian shoppers are boycotting American-made goods.4 China imposed a retaliatory tariff of 15% on chicken, wheat, and corn and 10% on soybeans, pork, beef, and fruit, which could potentially cost U.S. farmers billions of dollars in reduced agricultural exports.5
Inflation and growth fears
If U.S. companies must pay a 25% tariff on imported goods, their actual costs may not increase by the full 25%, because a foreign exporter might lower its prices to remain competitive. Still, it could cost substantially more for U.S. manufacturers to buy widely used commodities (such as metal or lumber). The price of domestic supplies could rise as well due to less foreign competition, as would the price of products that are made in the United States from those materials.
By one estimate, the price of a new car sold in a U.S. showroom could rise by a startling $4,000 to $10,000 if threatened tariffs on Canada and Mexico take effect as scheduled.6 The National Association of Home Builders reported that tariffs could increase the cost to build a typical new home by $9,200.7
In the worst-case scenario, significant inflation could hurt consumers, reduce sales, squeeze corporate profits, and result in job losses, especially in industries that depend heavily on imports. The rising possibility of tariff-driven inflation is just one reason that some economists have started to downgrade their forecasts for economic growth.8
More cautious consumers
Measured by the Consumer Price Index, inflation slowed to 2.8% over the 12 months ending in February 2025.9 It could take time for tariff-driven price increases to show up on price tags and even longer before it would be evident in official inflation reports. Even so, the closely watched University of Michigan survey found that consumer sentiment fell sharply in March and participants expected inflation to run at 3.9% over the next five to 10 years, the highest reading in more than 30 years. This sudden decline in confidence coincided with a barrage of news about tariff actions and layoffs at federal agencies.10
Retailers, airlines, and restaurants have reported seeing a noticeable decrease in consumer demand. It appears that consumers have started to pull back, and some could be tapped out after enduring several years of higher prices. Consumer spending accounts for two-thirds of gross domestic product, so if a significant slowdown materializes, it could put the brakes on economic growth.11
Businesses under pressure
For several decades, much of the world — including the United States — supported free trade and globalization. Many companies manufacture products in other countries and/or source raw materials or components from all over the world. Reshaping complex supply chains isn’t likely to be a quick or painless task.
Some tariff threats may be dropped through negotiations, so it’s unknown which tariffs will stick for the long-term. Uncertainty may cause many businesses to hold off on capital investments and/or hiring plans until they have more clarity on tariff policies and the direction of the economy.12 Tariff-related costs that can’t be passed on to customers could cut into the earnings of publicly traded companies in upcoming quarters, a prospect that has likely triggered some of the recent market volatility.13
What’s an investor to do?
It’s natural to be concerned when the market drops, but it may help to keep in mind that investors have also benefitted from two years of extraordinary gains. Stocks on the S&P 500 Index provided a total return of 25% in 2024 and 26% in 2023.14
Stocks regained some losses in the days following the correction, but prices could continue to fluctuate while investors digest the potential impacts of shifting trade policies. Expecting volatility and maintaining a long-term perspective may help you avoid making snap decisions that could derail your investment strategy.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 Index is an unmanaged group of securities that is considered representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.
1–2) The Wall Street Journal, March 17, 2025
3) Yahoo Finance, March 17, 2025
4) Business Insider, March 14, 2025
5) CNBC.com, March 12, 2025
6) The New York Times, March 14, 2025
7) National Association of Home Builders, March 17, 2025
8, 12) The San Diego Union-Tribune, March 13, 2025
9) U.S. Bureau of Labor Statistics, 2025
10) Yahoo Finance, March 14, 2025
11) CBSNews.com, March 17, 2025
13) Barron’s, March 17, 2025
14) Dow Jones Indices, 2025
