Did you know there is a difference between Social Security, SSI, and SSDI? Not only are they different payments but they come from different pools of money. I’ve found most people are confused by the different government benefits offered, which isn’t surprising considering there is a lot of complexity involved. So much so that even an expert can have a hard time laying them out clearly!
In one of our recent seminars a question was asked on the difference between SSI and SSDI, and it was apparent many other attendees were curious as well. So let’s go through each of these different payments individually through life’s typical progression through the three different types.
The first payment in the progression is usually SSI, or Supplemental Security Income. This benefit is payable to disabled adults and children who have met the requirements as outlined by the Social Security Administration (SSA), and have not worked long enough (and recently enough) in a job where Social Security taxes were paid. In addition to meeting the requirements defined as being disabled, recipients are required to have very limited income and their assets are below $2,000.1 SSI payments come from the US Treasury’s general funds which are collected through taxes and payments are capped at a low amount- $914 for a single individual in 2023.1, 2
Next in the typical progression is SSDI, short for Social Security Disability Insurance. This is a completely different pool of money, rather than being paid out of the Treasury’s general funds it is paid from a pool funded by Social Security income taxes. The monies are held in trust with the federal government where they invest it to grow the pool’s value. All monthly payments from this pool, which include SSDI as well as old age/retirement, dependent and other Social Security benefits, are governed by the Social Security Act. 3
Because the payments come from a pool funded from income taxes, these payments are payable to individuals who have qualified work history in a job where they contributed to Social Security. SSDI payments can also be payable to individuals without such work history, it just means their benefit will be based on their parent’s work history. SSDI payments based on a parent’s work history are payable only upon their parents reaching certain triggering events: upon their retirement, at onset of disability, or death. Once any of these triggers have been reached the disabled individual’s payments will switch from SSI to SSDI.
Reaching this milestone is a big deal because there are many perks to receiving SSDI payments over SSI. First, SSDI payments are not means tested, so the recipient is not required to maintain low asset levels. This is important for inheritance purposes or income. Secondly, payments are typically higher for SSDI than SSI as they are based upon the parents’ lifetime earnings. So not only are the payments not dependent on one’s asset level, but they can cover more expenses.
Last in the typical payment progression is SSDI payments payable upon a parent’s death. As mentioned above, if a disabled individual’s parent has experienced a triggering event their benefit will become based on their parent’s work history. While their parent is alive the disabled individual’s payment will equal 50% of their parent’s Primary Insurance Amount (or, the amount they are entitled to at their “full retirement age”, per SSA). Upon the parent’s death the individual’s payment will increase to 75% of their parent’s Primary Insurance Amount.
For illustrative purposes, let’s go through a hypothetical timeline. In this scenario we have Jason, age 31, and his mom, Linda, age 61. Linda is currently employed earning an income to support herself and her son Jason, who is unemployed and receiving SSI payments of $914 per month. Linda recently received her Social Security statement showing her benefit estimates. She found that if she retired next year, at age 62, she could start drawing Social Security for $2,200 per month, and if she waited to her Full Retirement Age of 67 she would get $3,200. Linda is tired of working and after seeing her monthly retirement benefit has decided it’s time to retire. She will receive $2,200 per month, and now Jason will qualify for SSDI benefits based on her work history. He is entitled to 50% of her Full Retirement Benefit of $3,200, even though she’s not getting that much. This means her monthly benefit will be $2,200 and his monthly benefit will be $1,600 (an increase from his SSI payment of $914 per month). As a bonus when receiving SSDI payments, Jason’s assets will no longer have to stay under the $2,000 asset limitation as was required for SSI. So because he’s still living with Linda and his expenses are low he has started to save some of his money and within a year he saved $4,500 in his bank account. Again, there are no limitations on this, so he can continue to grow that account if he wants to. Now let’s assume Linda and Jason live on for many years into the future. At the age of 83 Linda passed away suddenly. At this time Jason’s SSDI benefit increases to a higher percentage of his mom’s Full Retirement Benefit. If you remember, upon a parent’s death the benefit increases to 75% of their Full Retirement Benefit. Not accounting for any cost of living adjustments over the years, Jason’s new monthly payment will be $2,400- a far cry from his original SSI payment of $914 per month.
As you can see, the difference between these three payments can be substantial. We understand this may be a lot to take in because there are several moving parts. The key takeaways are there is a difference between Social Security retirement, SSI and SSDI payments, they each have their own set of eligibility requirements, and the benefits generally increase with each step in the progression. What’s noteworthy, though, is that at most any of these income limits, living on one’s own with only one of these benefits as income may be hard. That’s why we use this information as a part of our calculations to help us make plans for supplemental income sources. As specialists in Special Needs Financial Planning, together with you we determine what steps need to be taken to properly care for everyone important in your life.
Sources:
1”Supplemental Security Income (SSI) Overview”. https://www.ssa.gov/ssi/text-over-ussi.htm. 23 February 2023.
2Bauer, Brandy. “SSI vs. SSDI: The Differences, Benefits, and How to Apply.” https://ncoa.org/article/ssi-vs-ssdi-what-are-these-benefits-how-they-differ. 16 March 2022.
3Where Would My Social Security Benefit Come From?. DisabilityBenefitsCenter.org. 16 March 2022.
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