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Unpaid Debts Will Come Back to Bite You In the SSA

Do you have a lot of unpaid debt on your record? Are you nearing retirement age? You better hope you answered “no” to at least one of these questions. Otherwise, you might be in for a rude shock when your Social Security benefits kick in.

You probably know that most creditors can’t touch your Social Security benefits. Credit card companies and banks, for instance, can garnish your Social Security checks even if you owe them thousands in unpaid debts.

This makes sense: As you worked, you put money away for Social Security with each paycheck. You’ve earned your Social Security benefits. You’ve paid for them already, actually.

The federal government, though, doesn’t quite see it the same way. In fact, Uncle Sam can make your budget awfully tight in your retirement years if you happen to owe the government money.

Hundreds of thousands of the disabled or elderly could receive smaller Social Security checks if they owe the U.S. government money from defaulted loans and other debts that are more than a decade old. Basically, the United States can collect debts owed to federal agencies by offsetting or withholding Social Security and disability payments.

Here’s a short list of federal agencies that are receiving withheld Social Security benefits as a result of defaulted loans: the IRS, which received $269.2 million withholding in 2009; the U.S. Department of Veterans Affairs, with $68.4 million in withholding; Department of Education, $62.5 million; Department of Agriculture, $9.1 million; the Army and Air Force Exchange Service, $6.6 million; and other miscellaneous departments, $4.5 million.

In 2001, the amount withheld from Social Security benefits to repay debts owed to the federal government was less than $10 million, but in 2002 the amount increased to about $100 million. From 2003 through 2005, it rose slightly past $200 million, while in 2006 it hit $300 million. In 2007, withholdings approached $400 million, finally breaking just past it in 2008.

Social Security withholding can be financially devastating to some seniors. Social Security benefits provided at least half the yearly income for 64 percent of the aged in 2007. These people rely on their benefits. If they’re cut significantly due to withholding, they could struggle to pay their bills in their retirement years.

Social Security has long served as a, well, security blanket for the United States’ older workers. The Social Security Administration paid benefits to about 55.8 million people in 2008.

Attitudes about Social Security are changing. A growing number of U.S. non-retirees, according to a recent Gallup survey, said that they are relying more on Social Security to cover a large portion of their financial needs during their retirement years. You can blame this on the fact that so many people have generated debt during the Great Recession. You can also blame it on unemployment. Many people simply aren’t able to sock away money for retirement. They have to rely on Social Security.

It’s important, then, for these same people to make sure that they pay down all the debts they owe to the federal government. This way, they guarantee that they’ll receive all the Social Security benefits to which they are entitled.

Social security being affected by unpaid debts