U.S. debt default could hit Social Security payments first

Seniors nationwide are on the front lines of the fight to raise the debt ceiling, because if the federal government can’t make a June 2 payment slated for Social Security recipients, the oldest beneficiaries — those over 88 — and people with disabilities will be the first to suffer.

Roughly $98 billion worth of benefits, including Medicare, Medicaid, and military and civil retirement payments, are scheduled to go out in the first two days of June, according to an analysis by the Bipartisan Policy Center.

Representatives from the White House and House Republicans continued talks on Wednesday aimed at raising the debt ceiling, before the government risks defaulting on debts owed, which could happen as soon as June 1.

The timing of an early June default threatens to hurt the country’s oldest and poorest Social Security recipients, said Kathleen Romig, director of social security and disability policy at the Center on Budget and Policy Priorities.

Social Security benefits are distributed four times a month, but the earliest round of payments go to retirees older than 88 years, as well as people with disabilities and seniors with especially low incomes — and less than $2,000 in assets — who are eligible for Supplemental Security Income (SSI). “There’s no fallback if these checks are late,” Romig said. “These are people who are literally not allowed to have emergency savings.”

Among them is Nora Jean Stone, 74, who says she has enough socked away to last a month if her $1,153 worth of SSI and Social Security payments doesn’t show up next week.

She and her son, who is disabled, share a one-bedroom rent-controlled apartment in San Francisco and rely on a combination of Medicaid, Medicare and food assistance to make ends meet. Being unable to pay rent, she says, could cost them her home of 36 years.

“Being poor, you’re always walking on eggshells,” said Stone, who worked for years as an administrative assistant and office manager at tech firms including AOL. “There are constantly unnecessary obstacles in your way, and now the debt ceiling is one more of them.”

Even a week-long holdup, economists say, could be devastating for the roughly 27 million Americans who rely on Social Security for most of their income. Food insecurity and poverty rates will almost certainly rise, and people will probably forgo medical treatments, as families struggle to make do without necessities.

[As funds run short, Treasury asks agencies if payments can be made later]

“It’s going to cause a huge amount of hardship if Social Security checks are delayed at all,” said Alicia Munnell, director of the Center for Retirement Research at Boston College and a former assistant treasury secretary. “When you’re living in a cash-strapped situation, timing really makes a lot of difference. People are waiting for their checks to buy groceries, to fill prescriptions. They get to the end of the month and are out of cash.”

In interviews with more than a dozen older Americans who receive federal benefits, nearly all said a delayed payment would have immediate consequences on their ability to pay for housing, utilities and groceries. Many were mapping out worst-case scenarios, making plans to do without blood pressure medication or borrow against their homes or return to work, though the prospect of rejoining the labor force after years away made them anxious. Several said they had become fixated on lawmakers’ every move, looking for hints into how this months-long skirmish might eventually be resolved.

“We worked hard our entire lives for Social Security, and we earned these benefits,” said Jim Massa, 64, a retired oceanographer in Fairbanks, Alaska. “To say suddenly, ‘You can’t have this money that you’ve earned, that you’re living on’ - they’re playing with people’s lives.”

Retirees are particularly susceptible to the whims of the economy because they often rely on fixed incomes and limited savings that have to last for indeterminate periods of time. In addition, their savings may be tied up in the stock market or government bonds, both of which are projected to take large hits if the federal government can’t pay its bills on time.

“A lot of older Americans have very little, if any, savings,” said Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania’s Wharton School. “And the savings they do have is often illiquid — they might have equity in their homes, for example, but it might not be easy for them to dip into. We could be facing tough times ahead.”

In Santa Maria, Calif., Melissa Fields says any disruption to her Social Security benefits next week would be crushing. The 63-year-old, who has autism, relies on $1,388 in monthly payments, as well as Medicare and Medicaid, to cover rent, buy groceries and pay for daily kidney dialysis.

Even so, she says the benefits have hardly been enough to keep up with rising costs. She has about $12,000 in debt and has been struggling to make minimum credit card payments.

“It feels like I’m living on the edge of a cliff,” she said. “I’m so scared. I’ve been disabled my whole life and have always depended on my Social Security, my Medicaid, my Medicare. To threaten to take that away is unfair, it’s cruel. The prospect (of) . . . being suddenly without money or health care is too much to bear.”

The risks of a U.S. default are vast and wide-ranging. If Congress and President Biden don’t reach a deal in the next week, the government will run out of money to cover its expenses, causing unprecedented harm to the economy. Stocks, bonds and the U.S. dollar would plummet, contributing to nearly 8 million job losses and wiping out an estimated $10 trillion in household wealth, according to estimates from Moody’s Analytics.

The blow to Social Security - which, at $1 trillion a year, accounts for 16 percent of the country’s annual spending - is expected to be particularly debilitating. An estimated 67 million people rely on Social Security benefits each month, making it the largest federal benefits program.

Republicans in Congress have maintained that they don’t want to cut Social Security benefits, though at least one recent budget blueprint calls for raising the eligibility age for full retirement from 67 to 70 to account for longer life expectancies. The GOP has also proposed a host of cuts and additional work requirements for other federal benefits, such as Medicaid and food stamps, that experts say would have an outsize impact on the country’s seniors.

“Older people, especially those who do not have savings, are very vulnerable to food insecurity and poverty,” said Sophie Mitra, an economics professor at Fordham University. “They have fewer resources than working-age people and may have chronic health conditions that may strain their budgets or limit their mobility. Social Security benefits are really key for their economic security.”

Holly DiBello spent decades working for small medical practices in Scottsdale, Ariz. But now that she’s retired, she relies on monthly Social Security and Medicare checks to cover her biggest expenses, including utilities, groceries and her husband’s $6,000-a-month hospice care.

“I’m about to turn 70 and here I am saying, ‘I guess I’ve got to go back to work,’” she said. “I don’t know what else to do. Just my husband’s medication — I have to pay cash, out of pocket, every two weeks — will take up every cent I have left.”

Experts say it’s unclear exactly how the government would prioritize payments in the case of a U.S. default, which has never happened before. When asked about the nature and timing of potential delays, a spokesman for the Social Security Administration directed questions to the Treasury Department. The Treasury Department did not respond to requests seeking comment.

“There’s tremendous uncertainty, of course,” said Romig of the Center on Budget and Policy Priorities, who previously worked for the Social Security Administration. “As soon as we hit that so-called ‘X-date,’ we’re going to be in opposition to dozens, maybe hundreds, of laws — including the Social Security Act, which says payments must be made on time in full.”

Anthony Gray received his first retirement check this month. But given the country’s debt ceiling debacle, he fears it could be his last for a while.

Gray, who left his computer programming job in 2019 after a skin cancer diagnosis, says he has put his life on hold, in case his next $1,388 Social Security payment doesn’t arrive as expected in mid-June. He has stopped buying eggs, is letting newspaper subscriptions lapse and is relying more on $3 subsidized lunches at a local senior center near Albany, N.Y.

“I’m not spending on anything I don’t absolutely have to spend on in case a government default means there’s no check,” the 62-year-old said. “I have to assume the worst, out of prudence, so maybe I can set aside enough to cover June’s bills. But what if this goes on for two months or three months? Then I don’t know.”