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Published: Jan 24, 2023 5 min read
Senior couple looking over bills and a calculator in their kitchen
Money; Getty Images

Alarm bells are ringing in Washington. The United States recently hit its debt limit — the cap on how much money the federal government is allowed to borrow to pay for all its financial obligations, including Social Security and Medicare payments, salaries for the military, tax refunds and more.

The Treasury Department has already begun taking “extraordinary measures” to ensure the country can keep making payments, though Treasury Secretary Janet Yellen has warned that it is difficult to know how long those measures will last. If lawmakers cannot agree to raise the debt limit and increase the amount of money the U.S. can borrow, the country runs the risk of defaulting on its debt — something that has never happened before.

Without an agreement in the currently divided Congress, experts are predicting a default could come as early as this summer. Some are already sounding the alarm about potential disruptions to Social Security payments.

Here’s what you need to know.

Will Social Security payments stop if the U.S. defaults on its debt?

First and most importantly, Social Security recipients are “going to get paid in full,” Donald Marron, director of economic policy initiatives at the Urban Institute, tells Money.

The question isn’t about whether Social Security benefits will be paid at all, he adds. The question is whether those payments — which go out to 66 million people every month — will be delayed or disrupted.

But Jason Fichtner, chief economist at the Bipartisan Policy Center, says even a delay is unlikely. “Social Security has sufficient income and assets to pay benefits,” he says, and the Treasury Department could access cash in other ways.

If there is a delay, Fichtner adds, it would likely only be a matter of days, not weeks.

Social Security is already a sensitive topic in Washington — some within the Republican party have proposed cuts to Social Security and Medicare as part of negotiations to raise the debt limit — which leads Marron to say “there would be strong pressure to make [Social Security] payments.”

He adds that while there’s certainly a “risk of delay” stemming from technical complications at the Treasury Department, among other factors, it’s more likely that lawmakers will reach a deal to raise the debt limit at the last moment, as they have many times before.

How would a U.S. default affect you?

A disruption in Social Security payments would undoubtedly mean hardship for some. The average monthly Social Security check is worth $1,827 this year, according to the Social Security Administration, and a delay in receiving that money could be disruptive for many of the nation's retirees.

“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 National Committee to Preserve Social Security and Medicare said in a recent statement.

A default could also mean delays for other government payments like SNAP benefits (aka food stamps) and federal employee salaries, as well as complications stemming from disruptions and even shutdowns at certain agencies, Fichtner says.

That’s not to mention the larger economic repercussions: “I would worry about the economic calamity that could result from a partial government shutdown,” Fichtner adds, like losses in the stock market decline and a possible recession.

How should you prepare for a possible default?

If you’re worried about cash flow in the future, now is a great time to prioritize your emergency fund. Experts generally recommend keeping between three and six months of expenses in a separate savings account to help you cope with unexpected financial burdens.

It’s also a good time to take a look at your investments and make sure your portfolio is aligned with your risk tolerance. With a potential recession on the horizon, it’s also a good idea to keep a close eye on your budget, find places you can trim your spending and prioritize paying down debt.

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