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If your injuries or medical conditions cause prolonged or permanent disability from work, you may be entitled to pursue benefits through the Social Security Disability Insurance (SSDI) program. Although SSDI can provide critical financial relief, you still need careful long-term financial planning to ensure you have the necessary resources for essential expenses.
Understanding SSDI Benefits and Eligibility
To qualify for SSDI benefits, your medical condition must meet the Social Security Administration’s definition of a “disability,” and you must have sufficient work history during which you’ve contributed to Social Security. A qualifying “disability” must prevent you from working and be expected to last at least 12 months or result in death.
You can demonstrate a qualifying work history by having a sufficient number of work credits. You earn these by earning a specific amount of income that is subject to Social Security tax (up to a maximum of four credits annually). You must meet lifetime and recent work credit thresholds, which depend on the age at which your disability began.
When you qualify for SSDI, your monthly benefits will depend on your lifetime earnings. The Social Security Administration will use these earnings and the extent of your work history to calculate your “primary insurance amount.”
Budgeting and Managing Monthly SSDI Income
When you receive SSDI benefits, creating a detailed monthly budget becomes critical. You’ll typically receive far less in monthly benefits than you earned while working. A monthly budget can ensure that your SSDI will cover essential expenses, including housing, utilities, food, and healthcare. You might consider applying for other benefits for which you qualify that can help with monthly expenses, such as SNAP benefits.
SSDI and Retirement Planning
SSDI benefits automatically convert into regular Social Security retirement benefits when you reach full retirement age. However, the conversion does not affect the dollar amount of the monthly benefit. You’ll have limited earning potential while you’re on SSDI to remain eligible for benefits. Therefore, you may consider budgeting for additional retirement savings to ensure long-term financial stability in your later years.
Taxes, Savings, and Investment Considerations
When you receive SSDI benefits and have additional income, you may owe income taxes if your “combined income” exceeds a specific threshold. Your combined income can include tax-exempt interest or dividends from investments. When you exceed the threshold, you may need to include up to 85 percent of your SSDI benefits as taxable income, depending on your income and filing status.
As an SSDI recipient, you can mitigate potential income taxes through lawful financial planning tools, such as special needs trusts or ABLE accounts (when disabled during childhood or one’s early 20s).
Healthcare and Long-Term Care Planning
Although you must initially budget for healthcare costs after getting approved for SSDI benefits, you’ll qualify for Medicare coverage after receiving benefits for 24 months, which can significantly lower healthcare costs. However, even after becoming eligible for Medicare, you should continue to budget for medical expenses and home health that are not covered. Savvy estate planning can help you prepare for long-term care expenses, especially if you expect your health condition to deteriorate over time due to a disabling injury or illness that qualified you for SSDI.
Contact an SSD Attorney
Before you apply for SSDI benefits, speaking with a seasoned SSDI benefits attorney can help you determine how any benefits you receive may affect your long-term financial considerations. Contact Grech Law Firm today for a free, no-obligation consultation with a Social Security disability lawyer to learn more about the implications of SSDI benefits on your long-term financial situation.