Receiving disability benefits doesn’t mean you have to put your financial goals on hold. In fact, investing while on disability can be a great way to supplement your income, build wealth, and secure your financial future. However, it’s essential to understand the rules and regulations surrounding disability benefits and investing to avoid jeopardizing your eligibility.
Understanding Disability Benefits
Before we dive into investing on disability, it’s crucial to understand the different types of disability benefits and how they work.
Social Security Disability Insurance (SSDI)
SSDI is a federal program that provides financial assistance to people with disabilities who have worked and paid Social Security taxes. To be eligible, you must have a disability that prevents you from engaging in substantial gainful activity (SGA) and is expected to last at least one year or result in death.
Supplemental Security Income (SSI)
SSI is a need-based program that provides cash assistance to people with disabilities, blindness, or age (65 and older) who have limited income and resources. To be eligible, you must have a disability, be blind, or be 65 and older, and meet the income and resource requirements.
Can You Invest While on Disability?
The short answer is yes, you can invest while on disability. However, there are some rules and considerations to keep in mind.
SSDI and Investing
If you’re receiving SSDI benefits, you can invest without worrying about affecting your eligibility. SSDI benefits are based on your work history and earnings record, not your current income or assets. As long as you’re not engaging in SGA, your SSDI benefits won’t be affected by your investments.
SSI and Investing
If you’re receiving SSI benefits, the story is a bit different. SSI has strict income and resource limits, and investing can impact your eligibility. The good news is that some investments are exempt from counting as resources, such as:
- A home and the land it’s on
- One vehicle, regardless of value
Additionally, SSI has a “plan to achieve self-support” (PASS) program, which allows you to set aside income or resources to achieve a specific work goal. This can include investing in education, training, or starting a business.
Investing Strategies for People on Disability
Now that we’ve covered the basics, let’s explore some investing strategies that are suitable for people on disability.
Conservative Investing
Conservative investing is a great approach for people on disability, as it focuses on preserving capital and generating steady income. Consider investing in:
- High-yield savings accounts
- Short-term bonds or CDs
- Dividend-paying stocks
Tax-Advantaged Accounts
Utilize tax-advantaged accounts such as:
ABLE Accounts
ABLE (Achieving a Better Life Experience) accounts are designed for people with disabilities to save for qualified disability expenses without affecting their SSI or Medicaid benefits. Contributions to an ABLE account are not subject to federal income tax, and the account’s earnings grow tax-free.
IRA or 401(k)
If you’re receiving SSDI or SSI, you may be eligible to contribute to an IRA or 401(k) plan. These accounts offer tax benefits and can help you build a retirement nest egg.
Special Considerations for People on Disability
When investing on disability, it’s essential to consider the following:
Emergency Fund
Having an emergency fund in place is crucial, especially when living on a fixed income. Aim to save 3-6 months’ worth of living expenses in a easily accessible savings account.
Healthcare Costs
As a person with a disability, you may incur significant healthcare costs. Consider investing in a health savings account (HSA) or flexible spending account (FSA) to set aside tax-free dollars for medical expenses.
Long-Term Care Planning
Investing for long-term care is crucial, especially if you have a degenerative condition. Consider investing in a long-term care insurance policy or setting aside funds in a separate account for future care expenses.
Investing Safely on Disability
When investing on disability, it’s essential to prioritize safety and conservatism. Avoid investing in:
- High-risk or speculative investments
- Investments with high fees or commissions
- Complex or illiquid investments
Instead, focus on low-cost, transparent, and liquid investments that align with your financial goals and risk tolerance.
Seeking Professional Guidance
Investing on disability can be complex, and it’s essential to seek professional guidance from:
Financial Advisors
A financial advisor experienced in working with people on disability can help you create a customized investment plan that meets your unique needs and goals.
Disability Advocates
Disability advocates can provide valuable insights into the disability benefits system and help you navigate the complexities of investing while on disability.
Conclusion
Investing while on disability requires careful planning, consideration, and guidance. By understanding the rules and regulations surrounding disability benefits, exploring suitable investing strategies, and prioritizing safety and conservatism, you can unlock your financial potential and build a more secure future. Remember to seek professional guidance and stay informed to make the most of your investments.
Can I invest while receiving disability benefits?
Yes, you can invest while receiving disability benefits. However, it’s essential to understand the rules and regulations surrounding disability benefits and investments. The Social Security Administration (SSA) has specific guidelines regarding income and resources that can affect your eligibility for disability benefits.
It’s crucial to consult with a financial advisor or attorney specializing in disability law to ensure that your investments do not jeopardize your benefits. They can help you navigate the complex rules and regulations, ensuring that you make informed investment decisions while maintaining your eligibility for disability benefits.
How much can I invest without affecting my disability benefits?
The amount you can invest without affecting your disability benefits varies depending on the type of benefits you receive and the specific rules governing those benefits. For example, if you receive Supplemental Security Income (SSI), you are limited to a certain amount of countable resources, which include investments.
Exceeding this limit may disqualify you from receiving SSI benefits. On the other hand, if you receive Social Security Disability Insurance (SSDI), the impact on your benefits is based on your income, not resources. A financial advisor or disability attorney can help you understand the specific rules and limitations associated with your disability benefits.
What types of investments are suitable for people with disabilities?
People with disabilities can consider a variety of investment options, depending on their individual financial goals, risk tolerance, and time horizon. Some popular investment options include high-yield savings accounts, certificates of deposit (CDs), bonds, mutual funds, and exchange-traded funds (ETFs).
It’s essential to assess your individual circumstances and goals before selecting an investment. A financial advisor can help you create a personalized investment strategy that aligns with your needs and objectives.
How do I get started with investing on a limited income?
Getting started with investing on a limited income can be challenging, but there are ways to begin. You can start by setting aside a small amount each month, even if it’s just $10 or $20. Consider taking advantage of automatic investment options, which allow you to invest a fixed amount regularly.
You can also explore low-cost or no-fee investment options, such as index funds or ETFs. Additionally, consider consulting with a financial advisor who specializes in working with people with disabilities to get personalized guidance and support.
Can I use my disability back pay to invest?
Yes, you can use your disability back pay to invest. Disability back pay is a lump-sum payment you receive when your disability claim is approved, covering the period from your claim date to the approval date.
It’s essential to consult with a financial advisor or attorney to ensure that using your back pay for investments does not affect your ongoing disability benefits. They can help you create a plan to manage your back pay wisely and make informed investment decisions.
How can I protect my investments from being seized or garnished?
People with disabilities may be concerned about protecting their investments from being seized or garnished, particularly if they have outstanding debts or legal judgments. One way to protect your investments is to consider holding them in a protected account, such as a Medicaid asset protection trust (MAPT) or a supplemental needs trust (SNT).
These types of trusts can help shield your investments from creditors and ensure that they are used for your benefit. Consult with an attorney specializing in disability law to determine the best strategy for protecting your investments.
Are there any specific tax implications I should be aware of?
Yes, there are specific tax implications that people with disabilities should be aware of when investing. For example, certain investments, such as municipal bonds, may be tax-exempt or offer tax benefits.
It’s essential to understand how your investments will be taxed and to consult with a tax professional or financial advisor who specializes in working with people with disabilities. They can help you minimize tax liabilities and maximize the growth of your investments.