Who Owns the National Debt and Why It Matters for Your Retirement & Portfolio, LFG Daily - December 1, 2025

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Who Owns the National Debt—and Why It Matters for Your Retirement

Most people treat the national debt like background noise. It’s something politicians shout about on cable news, economists warn about in interviews, and taxpayers try not to think about while they’re filling out their return every April. But the national debt isn’t just a Washington problem. It’s a quiet force shaping interest rates, inflation, taxes, Social Security, and ultimately the financial security of every retiree. Whether you’re close to retirement or still in the building phase, it’s worth understanding who owns all this debt and what it means for your long-term plan.

When people imagine the national debt, they often picture foreign countries holding America’s future hostage. The truth is far more interesting—and far more domestic. The largest holder of U.S. debt is actually the American public. Through pension funds, insurance companies, banks, and the mutual funds inside your 401(k) or IRA, U.S. investors collectively own roughly 40% of all outstanding Treasury securities. Every time you hear someone talk about Treasuries as “safe,” it’s because millions of Americans—from retirees to large institutions—rely on them as a bedrock of financial stability.

Foreign governments do play a role, but it’s not as ominous as the headlines make it sound. Countries like Japan and China buy Treasuries because they want reliability and liquidity. Treasuries help balance their currencies, smooth their trade relationships, and provide a dependable home for excess capital. They’re lenders, not puppet masters. And they lend because, despite all our flaws, the U.S. remains the world’s most trusted borrower.

Then there’s the strange part: the U.S. government owes a significant portion of its debt to itself. Agencies like the Social Security Trust Fund hold trillions of dollars in Treasuries. In practice, it’s the government tucking IOUs into its own filing cabinet with the promise that future tax revenue will pay them back. The Federal Reserve also owns a sizable chunk, accumulated during efforts to stabilize the economy—whether through crisis-response measures or interest rate management.

So why should retirees care about this giant circle of borrowing and lending? Because debt doesn’t just sit there. It shapes the economic environment in ways that directly impact your nest egg.

As the national debt grows, so does the government’s need to borrow. Heavier borrowing generally pushes interest rates higher over time, because the government begins competing with businesses and consumers for capital. Higher interest rates ripple through the financial system: they slow economic growth, put pressure on corporate earnings, weigh on stock valuations, and make real estate and borrowing more expensive. Traditional retirement portfolios that rely heavily on a 60/40 mix of stocks and bonds must now navigate a world where both sides of that equation behave differently than they did for the past four decades.

Tax policy is another area where the debt shows up in retirees’ lives. High levels of federal debt eventually force a conversation about how to pay for it. Historically, that has meant higher taxes. Maybe it’s through higher income brackets, more taxation on Social Security, increased capital gains rates, reduced deductions, or new surtaxes on higher earners. No matter the form, retirees—especially those with large IRAs and required minimum distributions—sit squarely in the crosshairs. Building a retirement plan that assumes today’s tax rates will last forever is one of the biggest financial planning mistakes a person can make.

Social Security adds another layer. Because the program holds such a large share of Treasuries, it relies on the government’s ability to repay that debt. As the Boomer generation continues retiring, Social Security begins redeeming those IOUs. That creates pressure on the federal budget at the exact moment the worker-to-retiree ratio is shrinking. The result is a system that will almost certainly be reformed—not eliminated, but reshaped. Future retirees should expect slower benefit growth, higher taxation of those benefits, or adjustments in eligibility. None of these are pleasant to think about, but pretending they won’t happen doesn’t make for good financial planning.

Then there’s inflation—the silent risk that eats away at retiree purchasing power. When debt rises too quickly, the Federal Reserve often steps in to help by purchasing more of it. That can be inflationary, especially if the economy is already running hot. Even modest inflation is dangerous in retirement because it compounds quietly year after year. A retirement that looked comfortable at 65 can feel very different at 80 if prices rise faster than your income.

But here’s the good news: none of this is a reason to panic. It’s a reason to plan. You can’t control Congress’s spending habits, but you can build a retirement strategy that accounts for higher taxes, higher rates, and potential inflation.

That means building diversified portfolios that aren’t overly dependent on one economic outcome. It means structuring retirement income to be flexible and resilient. It means proactively managing taxes through tools like Roth conversions, strategic withdrawals, and smoothing out taxable income long before RMD age. And it means treating Social Security as a component of your plan—not the foundation of it.

The national debt is enormous, complicated, and constantly growing. But for individuals, the takeaway is simple: understanding who owns the debt helps you understand the forces shaping the financial world you’re retiring into. And with a smart, forward-looking strategy, you can build a retirement that thrives no matter what happens in Washington.

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

Japan’s 2Y JGB hit a 1% yield for the first time in 17 years on rate-hike expectations, which seemed to break stuff overnight. Including bitcoin falling over 5%. Everything seems off worst levels but still down a fair amount. US stocks have basically given back Friday gains.

Chinese Manufacturing PMI was a slight contraction again, as expected, at 49.2, and Services PMI disappointed, at 49.5 vs. exp. 50. The weak numbers also didn’t help put markets in a good frame of mind.

China vowed to crack down on virtual currencies and expressed concerns over stablecoins, helping knock down the crypto space.

Trump said he knows who the next Fed chair will be, saying he expects them to deliver rate cuts. I’m staying close to the phone.

ISM Manufacturing PMI, today. Powell also talks, but this is during the pre-FOMC blackout so he can’t say anything about policy.

What does it all mean? Japan’s hawkishness is causing worry but that seems likely to be a one-off move. We’ll see how things trend.

I want to emphasize that for now, everything looks really constructive. We just survived the Fed pushing against rate cuts, along with some earnings season scares. From here, Quantitative Tightening, the shrinking of the Federal Reserve balance sheet, is finally over. The Fed will be cutting rates again in December. Next year, we should get a very dovish Fed. There’s a lot to celebrate.

Of course, tops form on good news. Fed liquidity, in terms of how amply they are supporting financial markets, seems a bit sketchy. Once we get something to trouble markets, it could be bad.

Right now, though, I’d tend to think we likely have a pretty constructive path into year-end. You never know, of course, as something can come out of left field to cause trouble, but right now, liquidity seems set to flood the system. December rate cut pricing is coming back and that’s helping credit spreads come back down.

Volatility is also coming back down, and it seems reasonable to expect that can continue for a while. The expectation that we would see a more constructive setting is why we spent November getting our portfolios set up for more upside.

Of course, this isn’t 2020. There’s no massive flood of stimulus coming to lift all boats. If fact, I think you need to be a little careful, here. A lot of low-quality names got hit hard in November and I’m not sure all of them are going to come back. A lot of these are somewhat questionable businesses and I’m not sure they can recapture investor enthusiasm quickly. There’s probably a limit to how much risk you want to take on, now.

Longer term, what I most worry about is a slowdown or recession. A good chunk of the worry is because the market remains expensive and that’s helped greatly by foreign trade (below.) The dollars that are used to buy foreign products tend to get recycled into US assets, at least for as long as that makes sense.

Note that’s also the flip side of Trump’s trade war. Bringing back jobs may be good for Americans but is hard on US asset markets. If we’re not buying from abroad, they’re not buying our stocks and bonds with the money we gave them.

Further, lowering rates should weaken the dollar, which also makes US assets less attractive to foreigners. Effectively, if the dollar goes down -8%, as it has this year, the dollar of goods foreigners bought to start the year is now worth 92 cents. Whatever they bought, I hope it grew.

Right now should be a great time to own assets but it’s easy for me to imagine the good times slow down at some point next year. For now, we can get most of the growth back that we lost during the shutdown, but after that we see a slowing job market and signs of a slowing consumer. An elevated market needs to see money flow in, and that may be poised to break at some point, next year.

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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