Paycheck Chronicles

Military Pay Not Safe Forever (Nor Retired, nor Disability, nor ....)

Important Update 7 October 2013:  15 October 2013 Pay Is Coming

Important Update 5 October 2013:  DFAS Unsure of 15 October Military Pay

Military pay is protected during a budget-related government shutdown due to a bill signed into law late Monday night, but that doesn't mean that we can all relax.  The next big challenge to pay is the debt ceiling.  The debt ceiling is the limit on the amount of money the government can borrow.  Under the current limit, our government will run out of money on or about 17 October 2013.  (Technically, it has already run out of money, but it has done some hocus-pocus to get us to 17 October 2013.)

For many reasons, this is a significantly larger problem than the current government shutdown.  Imagine if you paid all your bills with credit cards, and you hit your credit limit.  That's what's happening to the government.  Just like a family budget, the income and bills tend to come in bunches.  In a month, the Treasury typically brings in roughly $222 billion and owe roughly $328 billion.   There are several big bill days each month, where Treasury has huge financial obligations.

Big Bills Coming Up

While the government has a lot of bills due every day, certain days are more expensive than others.  In the weeks following 17 October 2013, the following expenditures are scheduled:

23 October 2013:  $12 billion in payments for Social Security obligations are due.

31 October 2013:  $6 billion in interest on Treasury bonds are due.

1 November 2013:  $68 billion in Social Security payments, disability payments, Medicare payments, military pay and retirement pay are due.

Robbing Peter to Pay Paul

Just like a family who doesn't have enough money to pay all its bills, the federal government could end up paying some bills first, and other bills later.  There are a number of issues that come into the decision:  legal authority, physical capability (in terms of computer systems, etc.), long-term implications and sensibility.

There are several theories about how the Treasury could make its payments.  The US federal government has never been in this situation before, so no one really knows.  What seems sensible is to prioritize the payments that are deemed the most urgent, such as interest on Treasury bonds and payments to individual citizens.  However, there doesn't seem to be legal authority to do this; even if there is, it is unlikely that the computer can be reprogrammed to effectively sort the approximately 100 million payments made each month.  After that, one possible solution is to pay bills as the money comes in.  Another solution is to wait until the Treasury has enough money to pay an entire day's worth of bills, and then do so.  Both run into the same legal and technological questions.

What Does This Mean For You?

In short, it is possible that the 1 November 2013 military paycheck will be delayed.  For exactly the same reasons, it is possible that the 1 November 2013 payments to military retirees, disabled veterans, federal retirees, Survivor Benefit Plan recipients, and other federal payments will be delayed.

Because we can't predict if it will actually happen, the best thing to do is prepare.  Look at your current situation, consider your options, and make a plan for how to survive this situation.  While you may not believe it could happen, that doesn't make it OK to not think about it.  A little preparation can help prevent a lot of unnecessary stress.

Most of this information was derived from the Bipartisan Policy Center's website and Absolutely Everything You Need To Know About the Debt Ceiling at The Washington Post's Wonkblog.

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