Last month, over 66 million people received Social Security checks, with 49.3 million being retired workers, according to national pollster Gallup. Seniors rely on these checks to make ends meet, but the impending uncertainty regarding the US debt ceiling is causing considerable concern for these beneficiaries. Will they continue to receive their monthly checks if the US Treasury runs out of cash?
It’s a good news/bad news scenario for Social Security recipients.
Understanding the US Debt Ceiling
The debt ceiling is the authorized borrowing capacity for the federal government. It accounts for all existing spending and projections currently on the docket but doesn’t include any new financial obligations.
The US has raised the debt ceiling 78 times since 1960, under both Republican and Democratic presidents, so this hasn’t been a partisan issue. Also, the US Treasury has never defaulted on its financial obligations.
In January 2023, the United States hit its technical borrowing capacity of $31.4 trillion. Since then, the US Treasury has resorted to extraordinary measures to buy lawmakers some time to secure a deal. However, that time has nearly run out, as of the writing of this article on May 25. In a letter addressed to House Speaker Kevin McCarthy (R-Calif.) from Treasury Secretary Janet Yellen on May 22, Yellen warned that it is “highly likely” that Treasury wouldn’t be able to satisfy all government obligations if Congress doesn’t act to increase the debt ceiling by early June.
A debt default could lead to a cascade of higher interest rates on everything from mortgages to credit cards and push the US economy into a recession.
The Good News for Social Security
Social Security is a massive obligation for the federal government, but the good news is that, thanks to a law passed 27 years ago, Treasury Secretary Janet Yellen must keep the benefit checks moving for eligible beneficiaries. Section 1145 ensures that Yellen uses Social Security’s asset reserves as a tool to continue paying benefits, even if the government defaults.
The asset reserves were $2.832 trillion as of April 30, 2023, and are required by law to be invested in special-issue bonds and certificates of indebtedness. Interest income generated from the federal government guarantees that every cent is accounted for. Between 1983 and 2020, Social Security brought in more revenue than it paid out every year.
The program’s current asset reserves could last about two years at an estimated benefit outlay of $1.375 trillion in 2023 and $1.471 trillion in 2024.
The Bad News: Social Security Is Not Immune
Social Security has two issues if the US faces a debt default.
The first issue is that the program’s asset