Relax. Your monthly Social Security checks are not in danger because of the looming federal government shutdown.
That will be reassuring news to those retirees who, like many of the rest of us, have difficulty understanding the different impacts of, on the one hand, the U.S. government coming up against its debt limit, and on the other hand a government shutdown prompted by the failure to pass an annual budget.
The former crisis was threatened earlier this year, you may recall, and only averted at the last minute. Hitting the debt limit could have led to a delay in Social Security payments, as I wrote at the time.
A government shutdown, in contrast, the prospect of which we’re facing now, would not have the same impact, for two main reasons.
The first is that the source of funding for those payments is the Social Security trust fund, which is not part of the regular annual government budget cycle.
Second, despite how it’s usually described in the news media, a government shutdown is only partial. Government staff deemed to be essential employees are not furloughed during a shutdown, and that includes most of those who work at the Social Security Administration (SSA)—86% of them, in fact, according to an analysis SSA conducted in August.
Steve Robinson, the chief economist for The Concord Coalition, said in an email that “I think the SS checks are safe — just like during all the previous shutdowns.” The Concord Coalition describes itself as “a nonpartisan organization dedicated to educating the public and finding common sense solutions to our nation’s fiscal policy challenges.”
The first of my two reasons is worth exploring in greater detail, since it challenges a longstanding misconception about Social Security’s finances. According to that misconception, the Social Security trust fund has no money in it, since the Federal government long ago “raided” it to fund other programs. I have often tried to show why that misconception is false, and perhaps a government shutdown—if one does indeed occur—will finally convince the skeptics that the Social Security trust fund is not broke.
The source of the misconception is confusion about accounting. By law, the SSA is required to invest its trust fund in U.S. Treasury securities, thereby exchanging one asset for another—cash for bonds—with no net impact on the trust fund’s net worth. So while it’s true that the trust fund doesn’t own cash in the amount of $2.83 trillion (its size at the end of 2022), by no means does that imply the trust fund has no assets.
To illustrate my point, consider the Vanguard Treasury Money Market Fund, one of the largest government-only money-market funds with $58.3 billion in assets. According to Vanguard, 94.4% of the fund’s assets are invested in U.S. Treasury bills, 2.2% in other U.S. government bonds, 3.5% in repurchase agreements—and hardly any in cash. Yet I’m not aware of anyone alleging that this money-market fund is broke because the federal government took all the fund’s money and has long since spent it. But if skeptics think that the Social Security trust fund is broke, then they should also make the same claim about this Vanguard money-market fund.
Actuarial deficit
The Social Security trust fund may have $2.83 trillion in it currently, but that doesn’t mean it won’t run out of money in the future—2033, according to recent projections from the Social Security chief actuary. But this actuarial deficit is not what is being alleged by those who claim that the Social Security trust fund currently is broke.
At some point in the next 10 years, Congress will need to address this actuarial deficit. Otherwise, after 2033 Social Security will be able to pay only about 75% of the benefits to which recipients otherwise would be entitled.
That’s the funding crisis that Social Security recipients should be worried about, not the current brouhaha over the 2023-2024 fiscal year budget for the federal government.
