As the deadline to raise the debt ceiling approaches, Washington is still dragging its feet. It’s been a month since President Biden’s and Speaker Kevin McCarthy’s last meeting and there’s no sign of progress.
What happens if the U.S. defaults on its debts? Federal benefits could be cut, markets would tank, jobs would be lost, and America’s reputation would sour. Virtually everyone would be worse off from this self-imposed disaster.
Each American would feel the effects of a default in different ways. Here’s what a default on the debt would mean for senior citizens:
Social Security and Medicare could delay or cancel payments
The White House Council of Economic Advisers (CEA) reports that the average 70-year-old married couple receives $4,800 per month from these programs. That’s more than half of a retired household’s average income.
The CEA warns that after a default, Social Security checks could be delayed, reduced, or canceled. Medicare recipients could also lose coverage.
Federal pensions could be delayed or canceled
Pensions for retired federal employees would also be in trouble, according to the National Active and Retired Federal Employees Association. By 2018, over 2.5 million retirees were receiving an average of $2,500 per month from federal pensions. After defaulting, those payments would be delayed or canceled.
It’s possible the Treasury could prioritize paying for certain programs. Jason Fichtner, chief economist at the Bipartisan Policy Center, said, “Social Security I’m sure will get paid” after a default. Still, that would be difficult – and potentially illegal – for the Treasury to do, so there are no guarantees for seniors.
Stocks/bonds could lose value
Even if retirement benefits are prioritized, seniors would not be protected from the broader economic fallout after a default.
The Committee for a Responsible Federal Budget says that stocks could lose up to a third of their value, which would gut many peoples’ 401(k). The government would also have to delay payments to Treasury bonds, which many retirees own as a “safer” alternative to stocks.
There are plenty of “debates” that seem important to people in Washington but don’t matter much to regular people. The debt ceiling debate isn’t one of them. If the U.S., for the first time in our history, defaults on our debt obligations, every American will pay the price.