The number of U.S. retirees carrying credit card debt has jumped dramatically in recent years. In 2022, only 40% of retirees surveyed for the Employee Benefit Research Institute Spending in Retirement study said they were carrying credit card debt. In the same survey conducted two years later, 68% of retirees said they had credit card debt.
If you’re an older American saddled with debt, you may wonder what will happen to your Social Security benefits if you can no longer make your monthly payments to creditors.
The answer depends on what type of debt you have and to whom you owe money.
[Read: What Happens to Social Security Benefits When You Die?]
Most Collectors Can’t Touch Your Social Security
Private debt collectors such as credit card companies and banks can’t garnish your Social Security benefits. Section 207 of the Social Security Act prohibits debt collectors or a bankruptcy court from dipping into your bank account to take Social Security money to pay off what you owe.
In the past, there was a risk that money deposited from a paper check could get mistaken for money that could be garnished. “You’d have to prove it’s protected money (in your account),” says Germi Cloud, a certified national Social Security advisor and partner at Cloud Financial in Huntsville, Alabama. However, the government officially phased out paper checks in 2013, so that is no longer a concern.
[READ: How to Maximize Social Security With Spousal Benefits.]
Government Agencies Can Raid Your Benefits
While your money is safe from private bill collectors, the government can and will take a portion of your Social Security benefits if you owe money. That means your benefits could be garnished if you are behind on payments for any of the following:
— Income taxes
— Federal student loans
— State-ordered child support or alimony
— Federally backed mortgages
How much can be taken from Social Security depends on the type of debt you owe.
In most situations, the government can pull 15% of your benefits to cover your debt, but under the Debt Collection Improvement Act of 1996, it must leave you at least $750 each month. That is, unless the levy is for federal income taxes. In that case, the government isn’t required to leave $750 behind. The other exception is for child support or alimony payments. Depending on your state laws, the court may be able to take up to 65% of your benefits to pay your obligations to your children or ex-spouse.
Fortunately for most seniors, child support and alimony payments typically end before retirement. Likewise, student loans wouldn’t seem to be an issue for older Americans, but that may be changing.
“Federal student loans will be an interesting dynamic in the future,” says Willie Schuette, owner and founder of The 611 Group Wealth Advisors in Avon Lake, Ohio. “I see that potentially being a (problem) area (for seniors).”
More than 8% of those age 60 and older have student loan debt, according to data from the Federal Reserve Bank of New York compiled by the Education Data Initiative. They owe an average of $37,360. The number of Americans age 60 and older with student loans has increased sixfold in the past two decades, according to the nonpartisan think tank New America.
As a final note on Social Security garnishments, it’s important to distinguish between retirement benefits and supplemental security income given to disabled adults and children as well as some low-income seniors. The latter cannot be taken to pay off debts, even by the government.
[READ: Frequently Asked Social Security Benefit Questions.]
The Best Defense Is a Good Offense
If you think your Social Security benefits might be raided to pay overdue bills, the worst thing you can do is ignore the problem.
“They don’t want to go after your Social Security. Believe me,” says Jordan Niefeld, a certified financial planner with Raymond James in Hallandale Beach, Florida. In Niefeld’s experience, most government agencies are happy to work with you so long as you’re willing to work with them. “If you try to run away from the problem, they’re not going to be supportive,” he says.
Schuette says the government typically sends several letters about a debt before it takes action. The final letter will inform you of the intent to levy Social Security payments, and after that, you have 30 days to contact the agency and work out a payment plan.
Another strategy you could use is to delay starting Social Security until you have paid off what you owe. Unfortunately, that may not be a realistic option for some beneficiaries. “The (people) who take Social Security right away (may do so) because they are far in debt and need the money,” Schuette points out.
Whether you are receiving Social Security now or will be shortly, the best way to avoid the government taking a portion of your benefits is to work out payment plans for debts and stick to them. If you feel overwhelmed, look for resources to help with budgeting and debt consolidation.
“You’ve got to want to be better at your finances,” Niefeld says. “It doesn’t clean itself up on its own.”
More from U.S. News
What Happens if You Work While Receiving Social Security?
10 Ways to Reduce Taxes on Your Retirement Savings
How to Apply for Social Security
Is My Social Security Safe From Debt Collectors? originally appeared on usnews.com
Update 12/16/24: This story was published at an earlier date and has been updated with new information.
