How to Save for Retirement While on Disability

Saving for retirement presents a significant challenge, especially for individuals receiving disability benefits. Despite unique financial considerations, proactive planning and understanding available resources can lead to a more secure financial future. Building savings while on disability requires a tailored approach to financial strategy. This involves navigating specific rules and leveraging programs designed to support long-term financial well-being.

How Disability Benefits Impact Savings Potential

The ability to save for retirement while receiving disability benefits largely depends on the type of benefit received, as each program has distinct rules regarding income and assets. Understanding these differences is crucial for effective financial planning.

Social Security Disability Insurance (SSDI) is an earned benefit, based on past work history and Social Security tax contributions. SSDI generally does not impose limits on assets or unearned income, such as investment returns or gifts. However, earned income from working while on SSDI is subject to Substantial Gainful Activity (SGA) limits. For 2025, the monthly SGA limit is $1,620 for non-blind individuals and $2,700 for statutorily blind individuals. Consistently exceeding these amounts may indicate the ability to perform substantial work, potentially affecting benefit eligibility.

Supplemental Security Income (SSI) is a needs-based program for individuals with limited income and resources. SSI has strict asset limits, set at $2,000 for an individual and $3,000 for a couple in 2025. Exceeding these resource limits, even through savings or investment growth, can lead to a reduction or termination of SSI benefits. Most types of income, both earned and unearned, are considered when determining SSI eligibility and benefit amounts.

The distinction between SSDI and SSI asset and income rules is important. For SSDI recipients, the primary concern related to savings is the impact of earned income on SGA; unearned income typically poses no threat. For SSI recipients, virtually all assets and income are scrutinized, making careful planning essential to avoid exceeding the low resource limits. Unearned income, like interest from a savings account, directly reduces SSI benefits dollar for dollar after a small general income exclusion.

Retirement Savings Vehicles for Individuals with Disabilities

Several retirement savings vehicles exist that can be utilized by individuals with disabilities, though their suitability often depends on the type of disability benefit received and careful adherence to specific program rules. Each option offers unique advantages and limitations that must be considered.

ABLE (Achieving a Better Life Experience) accounts offer an opportunity for individuals with disabilities, particularly those receiving means-tested benefits like SSI. These accounts allow eligible individuals to save money without jeopardizing their eligibility for essential government assistance. To be eligible, the onset of the individual’s disability must have occurred before age 26.

For 2025, the annual contribution limit to an ABLE account is $19,000. Working account owners not participating in an employer-sponsored retirement plan may contribute an extra amount from their earnings, up to $15,060 for continental U.S. residents in 2025. Funds in an ABLE account, up to $100,000, are generally disregarded as a resource for SSI purposes, allowing recipients to save beyond typical SSI asset limits. Distributions from ABLE accounts are tax-free if used for qualified disability expenses, such as education or housing.

Individual Retirement Accounts (IRAs), including Traditional and Roth IRAs, can serve as retirement savings tools. For 2025, the contribution limit for both Traditional and Roth IRAs is $7,000, with an additional $1,000 catch-up contribution for those age 50 and older. Traditional IRA contributions may be tax-deductible, with taxes paid upon withdrawal in retirement. Roth IRA contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free.

For SSDI recipients, IRAs are generally viable as they do not have asset limits. However, contributions require earned income, which must be managed to stay below Substantial Gainful Activity (SGA) limits if working. For SSI recipients, Traditional and Roth IRAs typically count toward strict asset limits, making them less suitable unless assets are held within a Special Needs Trust.

Special Needs Trusts (SNTs) provide a legal mechanism to hold assets for a person with disabilities without disqualifying them from means-tested benefits like SSI. Assets held in an SNT are not counted toward the individual’s resource limit, preserving eligibility for public assistance. Establishing an SNT is a complex legal process that typically requires the guidance of an attorney specializing in elder law or disability planning. While SNTs are not direct savings vehicles, they enable a beneficiary to receive inheritances, lawsuit settlements, or other large sums of money that would otherwise cause a loss of benefits.

Employer-sponsored retirement plans, such as 401(k)s, can be an option for individuals with disabilities who are working part-time. For 2025, the employee contribution limit for 401(k) plans is $23,500, with a catch-up contribution of $7,500 for those age 50 and older. These plans help accumulate retirement savings, particularly if the individual has earned income from employment. However, individuals receiving disability benefits must carefully monitor their earnings to ensure they do not exceed income thresholds that could impact their benefits.

Integrating Work Incentives with Retirement Planning

Social Security Administration (SSA) work incentives encourage individuals with disabilities to work and earn income without immediately losing their disability benefits. These programs help generate income that can then be directed towards retirement savings.

The Ticket to Work program offers support services to help SSDI and SSI recipients find, maintain, and advance in employment. This voluntary program provides access to career counseling, vocational rehabilitation, and job placement assistance. It facilitates a path to increased earnings and helps individuals navigate returning to work.

For SSDI recipients, the Trial Work Period (TWP) allows them to test their ability to work for at least nine months without their earnings affecting full disability benefits. In 2025, any month where gross earnings exceed $1,160 counts as a TWP month. There is no limit on how much can be earned during these nine months, providing an opportunity to save earned income. These months do not need to be consecutive but must occur within a rolling 60-month period.

Following the Trial Work Period, SSDI recipients enter an Extended Period of Eligibility (EPE), which lasts 36 months. During this EPE, benefits can be reinstated for any month where earnings fall below the Substantial Gainful Activity (SGA) limit, which is $1,620 per month for non-blind individuals in 2025. This period acts as a safety net, allowing individuals to continue working and potentially saving while retaining access to benefits if earnings fluctuate.

Impairment-Related Work Expenses (IRWE) further support work efforts by allowing certain disability-related costs to be deducted from earned income when calculating SGA. These expenses, such as specialized transportation or medical devices, can effectively reduce countable earnings. This means an individual can earn more actual income while remaining below the SGA limit, preserving their SSDI benefits.

For SSI recipients, several work incentives also exist to facilitate earning and saving. Earned income exclusions allow a portion of wages to be disregarded when calculating countable income, reducing the impact on SSI benefits. For instance, the first $65 of earned income, plus half of the remainder, is typically excluded.

The Student Earned Income Exclusion (SEIE) specifically benefits SSI recipients under age 22 who are regularly attending school. In 2025, the SEIE allows these students to exclude up to $2,350 of earned income per month, with a maximum annual exclusion of $9,460, before their SSI benefits are reduced. These incentives create pathways for individuals to earn and save more, contributing to their long-term financial security.