For most individuals receiving Social Security benefits, their monthly payment plays a crucial role in maintaining their financial stability. According to Gallup’s 20-year survey, at least 80% of retirees depend on their Social Security benefits to some extent in order to cover their monthly expenses. The debt ceiling serves as the authorized cap on the federal government’s borrowing capacity.
However, as the deadline for the U.S. debt ceiling approaches, over 66 million beneficiaries are concerned about the potential risk of their Social Security payments being reduced or eliminated. It’s important to note that this limit does not cover borrowing for new spending or projects, but rather ensures the fulfillment of existing financial commitments by the government.
Impending Threat: The Growing Significance of the U.S. Debt Ceiling
Until recently, it was anticipated that lawmakers had a window of approximately two to three months to reach a consensus on a bill that would raise or suspend the debt ceiling. This would enable the federal government to fulfill its financial responsibilities. Impending Concern: Potential Disruption of Social Security Checks by June 1
If you’re among the 49 million individuals receiving a retired worker benefit each month, discussions surrounding the debt ceiling may have caused some concern. However, there is positive news to share.
Thanks to a 1996 law passed by Congress known as Section 1145, titled “Protection of Social Security and Medicare Trust Funds,” Social Security checks will continue to be disbursed even if the U.S. government faces default on its other financial obligations as early as June 1. This legislation grants Secretary Yellen the authority, and essentially the obligation, to utilize Social Security’s asset reserves to cover benefit payments, thereby circumventing the debt ceiling.
Since its inception, the Social Security program has collected more revenue than it has paid out in benefits and administrative expenses. This surplus cash, referred to as Social Security’s “asset reserves,” is mandated by law to be invested in interest-bearing special-issue bonds and certificates of indebtedness to generate returns. As of March 31, 2023, the combined asset reserves of the Old-Age and Survivors Insurance Trust (OASI) and Disability Insurance Trust (DI) amounted to $2.814 trillion.
Based on the provisions outlined in the 1996 law, Secretary Yellen possesses the authority to draw from the $2.814 trillion asset reserves to ensure the regular disbursement of monthly benefits. Considering that the OASI and DI are estimated to require around $1.232 trillion for scheduled benefits in 2022, Social Security’s asset reserves could hypothetically sustain benefit payments to eligible recipients for over two years, assuming a debt-ceiling resolution was not reached (though this scenario remains hypothetical).
Promising Benefits for Seniors: Discovering Additional Silver Linings
While the potential debt-ceiling crisis remains a serious concern for the U.S. government, Social Security beneficiaries can find some relief in the knowledge that their monthly checks will continue uninterrupted. However, there are additional positive aspects for seniors who rely on Social Security to meet their financial needs.
Firstly, history shows that lawmakers have consistently taken action to ensure the Treasury Department can fulfill America’s financial obligations. Although legislation raising or suspending the debt limit is often passed at the eleventh hour, the track record is impeccable. Since 1960, Congress has acted on 78 separate occasions to address the debt ceiling without a single instance of default. This bipartisan commitment has remained steadfast, transcending ideological differences between Democratic and Republican administrations. Consequently, there is a strong precedent for expecting a resolution and minimizing the need to disinvest Social Security’s asset reserves.
Furthermore, it is important to note that Social Security cannot go bankrupt or become insolvent. The program primarily relies on a 12.4% payroll tax on earned income (excluding investment income), which accounts for approximately 90% of its revenue. As long as Americans continue to work and pay their taxes, Social Security will have the necessary funds to distribute to eligible beneficiaries.
While the exact amount of these disbursements may be subject to discussion, the key takeaway is that Social Security remains a reliable source of support, whether an individual is currently retired and receiving benefits or decades away from their retirement and entering the workforce.