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What does the debt limit debate mean for Social Security payments?

Source: Shutterstock / Lane V. Erickson

While investors have expressed concerns about the impact of missing the debt limit, a whole other group of Americans remains particularly vulnerable: Social Security recipients. Indeed, if the country defaults on its debt, millions of American retirees could stop receiving the Social Security checks they depend on.

A government default actually means that the country is unable to raise the cash needed to pay its bills. At the same time, it would mean everything from total shutdowns of government services to closures of parks and government facilities. However, the impact on Social Security recipients would likely be much more severe.

The debt ceiling and social security

There are more than 65 million retirees and workers with disabilities in the eligibility program, many of whom have been receiving their Social Security checks since 1997. In many cases, these Americans rely heavily on government allowance for basic things. like groceries or paying bills.

For about 40% of Social Security recipients, government payments make up 90% or more of their income. The repercussions of a default would be particularly brutal for these Americans.

Unfortunately, Social Security checks can be terribly delayed if the debt ceiling fails to be raised before the estimated June 1 default date. Other potentially affected payments would include government employees and military service members.

“A lot of people in Washington aren’t aware of what that might mean,” said Max Richtman, executive director of the National Committee for the Preservation of Social Security and Medicare. “If you depend on your Social Security for most of your living expenses, you won’t be able to pay your rent, buy your food, pay your utilities, the essentials…pay for health care costs that can go up.”

Social Security Beneficiaries Wary of Debt Ceiling Crisis Ahead of ‘X-Date’

Interestingly, it seems older Americans are more concerned about the possibility of a government default this time around, compared to the last major debt limit standoff. According to Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, many older Americans worry not only about the impact of a default on Social Security, but also about the impact on the stock market.

Reasonably, White House economists estimate stocks could fall 45% if the United States breaches its debt limit for an extended period.

House Speaker Kevin McCarthy continues to deliberate with President Joe Biden on the debt ceiling crisis, so far to no avail. Although recent reports claim the two are only about $70 billion apart on the multi-trillion dollar deal.

“We worked well past midnight last night,” McCarthy told reporters Thursday. “There are still outstanding issues and I have asked our teams to work 24/7 to try to resolve this issue.”

As of the date of publication, Shrey Dua does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

With degrees in economics and journalism, Shrey Dua draws on his extensive background in media and reporting to write knowledgeable pieces covering everything from financial regulation and the electric vehicle industry to the housing market and the Monetary Policy. Shrey’s articles have appeared in Morning Brew, Real Clear Markets, Downline Podcast, and more.


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