US debt ceiling crisis could delay Social Security payments – Here's why you're still likely to get a check

Even a short delay could still be a big burden for Americans relying on social security for half of their income, expert says

An unresolved U.S. debt ceiling crisis could soon spell a default for the U.S., but an escape clause for Social Security means benefits will likely still be paid, just on a delayed timeline. (iStock)

A decades-old law could protect Social Security even if the U.S. debt ceiling isn't raised in time to avoid a default, according to a recent report.

The Social Security "escape clause" from the debt limit enacted by Congress in 1996 allows the Treasury Department to draw down Social Security trust funds to pay the benefits. It prohibits the disinvestment of the Social Security trust funds for any purpose other than the payment of benefits, according to a Concord Coalition report authored by its Chief Economist, Steve Robinson. 

In other words, the trust funds can only be used to issue Social Security benefits and not to pay the U.S. government's other outstanding bills.

"Given the current balance in the Social Security trust funds ($2.8 trillion), the government would be able to ensure the payment of Social Security benefits – and fund the rest of the government as well – for a considerable period without increasing the debt limit," Robinson said in the report. "As long as there is a positive balance in the Social Security trust funds, the Treasury Secretary has both the authority and the obligation to pay Social Security benefits."

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US government could default by June 

The U.S. hit its $31.4 trillion debt limit on Jan. 19, 2023, but the Department of the Treasury has been undertaking a set of "extraordinary measures" to help the government service its debt, Secretary of the Treasury Janet Yellen said in a letter to Congress. The Treasury has calculated that those measures would be sufficient through early June. 

If Congress fails to raise or suspend the debt limit before June, the federal government would run out of money to pay all its obligations. That includes the $90 billion monthly Social Security payments made to 65 million recipients, according to the National Committee to Preserve Social Security and Medicare. Medicare and Medicaid payments could also be delayed.

"Even a short delay in the payment of Social Security benefits would be a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities," the committee said. "In fact, almost two-thirds of beneficiaries depend on Social Security for half of their income and 40% rely on their benefits for 90% or more of their income."

"Without the authority provided by increasing or suspending the debt limit, it is more likely than in the past that Social Security beneficiaries will feel the full impact of a default," the committee continued.

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New bill seeks to avoid default 

Recently proposed legislation is seeking to allow the Treasury to issue debt to pay principal and interest on what it owes and to avoid default even as it hits the debt ceiling later this year.  

The so-called "Default Prevention Act" also prioritizes the payment of Social Security and Medicare benefits.  

"The legislation …is not a substitute for addressing the debt limit, but it would ensure that we could avoid default – as the United States would be able to service its debt – and as importantly, we would be able to continue to provide health and retirement security to America's seniors," House Ways and Means Committee Chairman Rep. Jason Smith (R-Mo) said in a statement.

However, Treasury Secretary Yellen warned that there is no shortcut for dealing with the U.S. debt ceiling issue.  

"Prioritization is simply not paying all of the government's bills when they come due," Yellen said at a recent House Ways and Means committee meeting. "That is something we have never done since 1789. That really is just default by another name."

"Not paying the government's bills will produce economic and financial collapse," Yellen continued. 

If you are receiving Social Security checks and need more funds, you could consider taking out a personal loan to consolidate other high-interest debt payments into one monthly payment with lower interest rates. Visit Credible to compare multiple lenders at once and choose the one with the best rate for you.

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