Dear MarketWatch,
My brother, 60, is self-employed and has been for over 30 years. He recently developed a serious medical problem that will shorten his life. Because he has been so ill, his income has dropped significantly.
He will never be able to work like he used to. He has applied for disability benefits. According to the Social Security Administration, he needs to earn less than $1,500 a month to get $1,500 a month.
I just don’t know how long he can keep working. He has one employee who does the hard work for him. This employee is young and I fear he will get a better job. If he leaves, this company will go bankrupt. My brother just can’t do the job.
Can he put money into an IRA or 401(k) while he is under disability assessment by the SSA?
Related: ‘I wake up with fear’: My husband leaves retirement investment plans to me. How do I engage the right advisor?
Dear reader,
I’m very sorry to hear about your brother’s situation.
Contributing to an IRA or 401(k) would not prevent him from qualifying for Social Security Disability Insurance (SSDI). However, withdrawing it could be possible.
Claiming Social Security disability benefits can be complex and involves a number of rules.
As you mentioned, your income cannot exceed $1,470 (or $2,460 if you are blind) per month to qualify for disability benefits. The disability must also be classified as “severe” by the Social Security Administration, which is defined as a limited ability to perform basic work-related activities for at least twelve months (e.g., lifting, walking, and remembering tasks). . Here is a list of possible restrictions among eligible adults.
Things can get tricky: the SSA also takes into account what type of work the individual may be able to do. If the applicant is able to perform activities from his or her current job, he or she will decide that person is not eligible for benefits. If that person cannot do their own work, but can do something else, the same applies.
“We take into account your medical conditions, age, education, previous work experience and any transferable skills you may have,” the SSA says. “If you cannot do other work, we will decide [that] you are eligible for disability benefits. If you can do other work, we will decide that you do not have a disability and your claim will be denied.”
That said, workers on SSDI can contribute to a retirement account, but your brother cannot earn more than the monthly limit. And it’s complicated, too, because if he works, even part-time, it could prove he’s capable of working and thus disqualify him from benefits, according to law firm Sobo & Sobo Personal Injury Advocates.
The process for claiming disability benefits is long and arduous. It may also involve an appeals process, which runs from the moment your brother receives disability benefits.
Plans for the future
In addition to waiting for disability benefits, now is the time for your brother to take his future plans seriously. He must make a complete accounting of all his assets and debts – with or without social security disability – and draw up a budget, if he does not already have one.
In short, batten down the hatches. How much money does he need to live on every month? Be conservative when it comes to life expectancy.
Of course, these calculations should always be considered with extra care, but here’s some simple math: Calculate a percentage of pre-retirement earnings – say 80% – and determine how much of it will be replaced by Social Security and how much by personal income. savings. How do his personal retirement savings compare to his needs?
Don’t wait for an answer from the Social Security Administration about disability benefits to plan for the future. He can create an online account with the Social Security Administration to see how much he can expect in retirement benefits, and if and when he qualifies. The earliest date at which someone can claim these benefits is age 62. At that point, he will receive a percentage of the benefits he would receive at full retirement age.
Does he have an emergency fund outside of his retirement account? If so, please complete this. If not, create one and then fill it out. Many financial advisors suggest between three and six months of living expenses, but in his case he may want to try to get a year or more of living expenses that he can take advantage of if an emergency arises.
Also ensure that important documents are dealt with as quickly as possible. A will specifies who wants his assets distributed. A power of attorney designates who he wants to be responsible for his finances should he die or become incapacitated. A healthcare proxy appoints a trusted person who makes important healthcare decisions in the same situation.
If his situation is as dire as it sounds, taking care of that paperwork will save him – and everyone he loves – a lot of legal hassle in the difficult times ahead.
Also see: I am 64 and was forced to retire. Should I Convert My $1.3 Million to a Roth IRA?
Readers: Do you have any suggestions for this reader? Add them in the comments below.
Do you have a question about your own pension savings? Email us at HelpMeRetire@marketwatch.com