Social Security Payments Could Be Greatly Impacted If Debt Ceiling Not Raised

Social security and medicare concept with social security card and pile of money.
mphillips007 / Getty Images/iStockphoto

After a year of unprecedented stimulus program spending, the country has reached its debt limit. Now, if Congress does not suspend or raise the debt ceiling, it risks missing payments to both Social Security and the military.

See: 5 Things Most Americans Don’t Know About Social Security
Find: Social Security Benefits Might Get Cut Early — What Does It Mean for You?

U.S. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi in a recent letter that the Treasury would run out of money by Oct. 18 if the debt ceiling is not raised. The federal government’s fiscal calendar runs from Oct. 1 to Sept. 30, meaning there is very little time to make decisions.

The government has two separate goals — to fund the government further in general to avoid shutdown, and to then raise the debt ceiling.

Funding the government means that lawmakers convene to decide on how much to spend on future bills and plan for the upcoming year’s budget. Disagreements result in a government shutdown. Within these conversations, should the government decide not to increase the debt ceiling, the government then faces the risk of default.

Retire Comfortably

More: 10 Reasons You Should Claim Social Security Early

Government shutdowns are rare, but the longest in history happened just two years ago in 2019 when President Donald Trump held office, which lasted for 35 days. Conversations about increasing the debt ceiling are a little more complex than shutting down the government — and also hold far more potential dangers.

The debt ceiling is a term used for the amount of money the U.S. government has agreed the government can legally hold. Legislators decide to increase the limit to a certain amount or suspend it entirely until a certain date when the ceiling would then be imposed at whatever level the debt is on that day — essentially extending it to a further out date.

In 2019, a two-year extension was granted, which expired at the end of July. CNBC explains that the Treasury Department has not been able to issue new bonds to finance prior congressional spending. This creates the problem of preventing the government from honoring spending that has already occurred.

When Social Security Runs Out: What the Program Will Look Like in 2035

The debt ceiling would have to be increased or suspended in order to allow the Treasury to continue to pay receipts for purchases the government already made in the past. With the Treasury unable to foot the recent spending, it has dipped into a risky pot to cover its costs — Social Security.

In a piece written by Yellen for the WSJ, Yellen explicitly stated that if the debt ceiling was not raised, then sometime in October, “the Treasury Department’s cash balance will fall to an insufficient level, and the federal government will be unable to pay its bills.”

The implications for default go beyond politics. Yellen stressed that should the United States default on its fiscal obligations, the everyday consumer will be affected.

Plan: How Much You Should Have in Your Retirement Fund at Ages 30, 40, 50 and 60
Compare: All the States That Don’t Tax Social Security

“We can borrow more cheaply than almost any other country, and defaulting would jeopardize this enviable fiscal position. It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers,” Yellen stressed. “Mortgage payments, car loans, credit card bills — everything that is purchased with credit would be costlier after default.”

Retire Comfortably

More From GOBankingRates

Last updated: September 30, 2021

About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.