Military families, retirees, Survivor Benefit Plan (SBP) annuitants, disabled veterans, Dependency and Indemnity Compensation (DIC) recipients, and GI Bill users all need to be paying careful attention to the current debt ceiling situation. Under current estimates, our country will run out of borrowing authority on 3 November 2015, and all federal payments may be impacted if the ceiling is not raised before we run out of current borrowing authority.
Debt ceiling crises are not unusual. I've written about the topic nine times since 2011. Each month, the federal government spends more than it earns, and borrows money to pay all its bills. However, we have legal limits to the total amount of money our money can owe, called the "debt ceiling." Because the country continues to outspend its income each month, it then runs into the debt ceiling on a regular basis. Each time, Congress has to vote to increase the debt ceiling (it has happened 78 times since 1960.) However, the opposition to increasing the debt ceiling grows each time.
Once we reach the debt ceiling, the governments income is only enough to pay about 69% of its bills. Some senior officials have suggested that there could be some prioritization of payments, but the Secretary of the Treasury Jack Lew has repeatedly stated that there is no mechanism for paying just a portion of the bills. In fact, it seems that no one is exactly sure how things would unfold if the debt ceiling isn't raised.
How Could This Impact You?
Here are the various pays and benefits that would be immediately impacted if Congress does not act to increase the debt ceiling by 3 November 2015:
- Military Pay
- Retired Military Pay
- Survivor Benefit Plan (SBP) Annuity Payments
- Veteran Affairs (VA) Disability Compensation
- Dependency and Indemnity Compensation (DIC)
- GI Bill payments
- Low-Income Veterans and Survivors Benefits
Under the best scenario, these benefits would be paid as the money becomes available. Under the worst scenario, nothing gets paid until the debt ceiling is raised. Under a scenario that is both awful and good, benefits get paid but debt repayment is put off.
Should You Be Worried?
Yes and no.
Realistically, no one actually thinks that Congress will fail to pass another increase to our government's ability to borrow. However, that's just another "kick the can down the road" solution to a very real problem facing our country. The federal government is currently spending $100 for every $69 of income, and it has been overspending for decades. A solution must be found, but it's not going to be pretty or fast. But short-term, you'll probably receive your federal benefits in November as expected.
On the other hand, this is yet another example of why military families, and anyone receiving federal benefits, needs to be concerned about the economic stability of our country. I am very concerned: most of our retirement income plan is based around some level of federal benefits. We all need to have savings, diversity our income, and have backup plans in case things go crazy.
This information is accurate as of writing and to the best of my knowledge. If you’ve got conflicting info, please let me know in the comments. If you’re able to include sources, that’s even better. Thanks for your help.
Note: USAA has announced that they will be offering interest-free loans to certain federal payment beneficiaries if the debt ceiling crisis causes government payments to be delayed.
