Personal Finance

What debt ceiling woes could mean for Social Security benefits

Key Points
  • Treasury Secretary Janet Yellen suggested this week that Social Security benefits will be impacted if Congress doesn't raise or suspend the debt ceiling.
  • The program's funds that it uses to pay benefits will likely not face long-term consequences from any political gridlock on Capitol Hill.
  • However, there is the possibility that monthly checks could be delayed.
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Treasury Secretary Janet Yellen made headlines this week with an op-ed suggesting government checks could run dry if Congress doesn't raise the debt ceiling.

"Nearly 50 million seniors could stop receiving Social Security checks for a time," Yellen wrote.

The House of Representatives has passed a bill to temporarily fund the government and suspend the debt limit. However, that legislation could fail in the Senate. If lawmakers cannot come to an agreement, the government would shut down on Oct. 1.

Social Security beneficiaries may breathe a sigh of relief to know that the program's funds will still be there to pay their checks, regardless of what happens with the debt ceiling negotiations, according to Nancy Altman, president of Social Security Works, an advocacy group focused on expanding benefits.

However, there is the possibility that a government shutdown could delay how fast that money reaches people.

Social Security funds are separate

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Yellen: Congress should increase or suspend debt limit

Social Security is "sui generis," a legal term which means it is on its own, according to Altman.

"My reading of the law is that Social Security will not be affected and shouldn't be affected," she said.

Social Security, which was created in 1935, has never missed a benefit payment. One key reason why that will not change now is the fact that it is a pension plan, with a pension trust that is separate from the government's general operating fund, Altman said.

"That really sets it apart and makes it more secure," she said.

The asset reserves of the combined trust funds used to pay retirement and disability benefits was $2.9 trillion as of the end of 2020, according to the Social Security Administration.

At the same time, 175 million workers were contributing payroll taxes to Social Security. Employees pay 6.2% of their wages, which is matched by employers, on up to $142,800 in income as of 2021. Self-employed workers pay 12.4%.

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Even if the debt ceiling does not get raised, funds from payroll taxes would still continue to come into the government, Altman said.

Those contributions go toward the program's trust funds and are used to pay benefits.

Social Security's combined trust funds for retirement and disability can continue to pay full benefits until 2034, according to the recently released Social Security trustees report for 2021. At that point, 78% of promised benefits will be payable.

"If the debt ceiling doesn't get raised for a decade, which nobody thinks is going to happen, then there's not going to be a problem," Altman said.

How check delays could happen

Not everyone agrees on what the consequences could be for Social Security.

The National Committee to Preserve Social Security and Medicare recently warned that benefit checks could be delayed for weeks, or even longer, if Congress fails to either raise or suspend the debt limit.

Maria Freese, senior policy advisor at the committee, said it is not a straight yes or no answer as to whether the debt ceiling will affect Social Security's funds and ability to pay benefits.

That uncertainty is due to the fact that there is now more money going out in payments than there is coming in through payroll taxes, due to the size of the baby boomer population. To accommodate that, the program is drawing down from its trust funds, which include Treasury bonds that are used to pay benefits.

That situation could lead Social Security to get caught up in the government bumping up against its borrowing authority, which could delay benefits, she said.

"We are in an unusual situation," Freese said. "That's why I think people don't know exactly what the impact is going to be. We've never had this happen before."

The last time this came close to happening was in 1996, she said. At that time, Congress passed a bill that made it so that Social Security payments temporarily would not count against the debt limit.

"The beneficiaries never even noticed that it was a potential problem because it got resolved before it happened," Freese said.

If Congress is unable to reach an agreement in time to prevent a government shutdown, there is the possibility that could delay distribution of the money for another reason — lack of government workers.

So long as Social Security employees are deemed essential government workers who remain on the job, benefit checks will continue to go out, Altman said.

In the 2018 shutdown, Social Security continued to issue checks.

This is not the first time debate around Social Security and the debt ceiling has come up. In 2011, then President Barack Obama said Social Security benefit payments would stop during a shutdown. However, at the time, the Social Security Administration said checks would still go out, though the processing of benefit applications could be delayed.