Why Do I Have to Spend My SSI Disability Backpay Rather Than Saving It?

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Question: What Are the Rules for SSI Back Pay?

I was approved for fully favorable disability, but now I'm being told I have to spend my retroactive pay within six months or I won't continue to qualify for disability. I am confused.


It sounds like you were granted disability pay through the SSI (Supplemental Security Income) program. When you receive a "fully favorable decision," your benefits will be paid back to the month after you applied for SSI. Because Social Security decisions can take so long, you may be owed back payments of benefits for anywhere from three months to fifteen months or more. (Technically, these benefits aren't "retroactive" since they don't go back further than your application date. In contrast, SSDI (Social Security disability insurance) benefits can actually go back retroactively to a year before the application date if the applicant was disabled for that long.)

Social Security will pay you only three months of SSI at once in your first payment of back pay. If you are owed more retroactive benefits than that, Social Security will usually pay you in two or three installments, six months apart, unless you can prove you need the money for necessities. (See our article on SSI lump sum installments for more information.)

Historically, you had to spend the money rather than keep it. That's because the value of your cash and belongings must stay under the SSI asset limit in order for you to maintain eligibility for the SSI program. SSI's asset limit is currently $2,000 (for an individual). If you have more than $2,000 in countable assets (note that things like your car, your house, and your personal belongings are not counted), then you won't qualify. Luckily, the SSI program makes an exception for lump sums of disability backpay. The rule is actually that you have nine months to spend your retroactive pay. (If you receive more than one lump sum installment, you have nine months to spend the money each time you receive an installment.)

So, what should you do with your lump sum of SSI disability backpay benefits? First, you can pay for current expenses, such as:

  • pay rent or pay down your mortgage
  • put down a security deposit on a rental
  • repair or retrofit your house or apartment
  • pay off debts
  • stock up on food staples, and
  • pay for health insurance premiums and other medical expenses

Second, you can purchase any of the following assets, which won't count toward your SSI asset limit:

  • a car or truck
  • clothing, furniture, a computer, and other household goods
  • a house, apartment, or mobile home
  • tools for a business you want to start
  • life insurance (up to $1,500 cash surrender value), and
  • burial spaces, contracts, and $1,500 in burial funds put into a separate account.

Most other assets you might purchase would count toward the SSI asset limit. If you were to buy, say, a boat, it would be counted as an asset toward the SSI limit, so it wouldn't help you spend the lump sum within nine months.

Those who were disabled before the age of 26 can put their backpay into an ABLE account, a special type of account created by the Achieving a Better Life Experience Act, a federal law passed in 2014. Money in an ABLE account doesn't count as assets or resources for the purpose of SSI disability benefits or Medicaid. (For more information, see our article on ABLE accounts.) In addition, money put into a Program to Achieve Self-Support (PASS) to help you return to work doesn't count as a resource.

And finally, some SSI recipients put money into a trust to maintain SSI and Medicaid eligibility. The trust money would be available for you to spend on living and medical expenses, within limits. Read Nolo's articles on using a pooled trust when you have too many assets and using a self-settled special needs trust. You would probably need a lawyer's help to put your money into a trust, so most people will now use ABLE accounts to keep some savings.

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