Can my sick brother get Social Security disability benefits and still pay into a retirement account?

Dear MarketWatch, 

My brother, 60, is self-employed and has been for over 30 years. He recently developed a severe medical problem that will shorten his life. Because he has been so ill, his revenue has dropped considerably.

He will never be able to work like he used to. He applied for Social Security disability benefits. According to the Social Security Administration, he has to make less than $1,500 per month to get $1,500 per month. 

I just don’t know how long he can continue working. He has one employee who has been doing the hard work for him. This employee is young and my fear is that he will get a better job. When he leaves, this business will fold. My brother just can’t do the work.

Can he put money into an IRA or 401(k) while he is being evaluated by the SSA for disability?

Related: ‘I wake up with anxiety’: My husband leaves retirement-investing plans to me. How do I hire the right adviser?

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). Withdrawing from one, however, could. 

Claiming Social Security disability benefits can be complex, and there are a number of rules involved. 

As you mentioned, your earnings cannot exceed $1,470 (or $2,460 if blind) per month to qualify for disability benefits. The disability must also be classified as “severe,” according to the Social Security Administration, which is defined as limited ability to do basic work-related activities for at least 12 months (that is, lifting, walking and remembering tasks, for example). Here is a list of possible adult impairments that would qualify. 

It can get tricky: The SSA also considers what type of work, if any, the individual can do. If the applicant can perform any activities from his or her current job, they’ll decide that person is not qualified for benefits. If that person can’t do his own work, but can do something else, the same is true.

“We consider your medical conditions, age, education, past work experience and any transferable skills you may have,” the SSA says. “If you can’t do other work, we’ll decide [that] you qualify for disability benefits. If you can do other work, we’ll decide that you don’t have a qualifying disability, and your claim will be denied.” 

That said, workers on SSDI can contribute to a retirement account, but your brother can’t earn more than the monthly limitation. And it’s complicated, too, because if he’s working, even part-time, it could prove he’s able to work, and thus, disqualify him for benefits, according to the law firm Sobo & Sobo Personal Injury Attorneys. 

The process for claiming Social Security disability benefits is long and arduous. It could also involve an appeals process, which extends from any time before your brother may see disability benefits. 

Planning for the future 

Beyond waiting for Social Security disability benefits, now is the time for your brother to get serious about his future plans. He should take full accounting of all of his assets and liabilities —  with or without Social Security disability — and make a budget, if he doesn’t yet have one.

Basically, batten down the hatches. How much money will he need every month to live on? Be conservative about life expectancy. 

Of course, these calculations should always be considered with extra care, but here is some simple math: Calculate a percentage of pre-retirement earnings — say 80% — and determine how much of that will be replaced by Social Security and how much by personal savings. How do his personal retirement savings compare to his needs? 

Don’t wait for an answer from the Social Security Administration on disability benefits to plan for the future. He can create an online account with the Social Security Administration to see how much he might expect in retirement benefits, if and when he qualifies. The earliest an individual can typically claim those benefits is age 62, at which point he would get a percentage of the benefits he’d get at full retirement age. 

Does he have an emergency fund outside of his retirement account? If so, fill it up. If not, create one — and then fill it up. Many financial advisers suggest between three and six months’ of living expenses, but in his case, he may want to try to get a year or more worth of living expenses to draw on should an emergency occur. 

Also, get important documents done as soon as possible. A will sets out who he wants his belongings distributed. A power of attorney will name whoever he wants in charge of his finances should he die or become incapacitated. A healthcare proxy appoints a trusted individual to make important care decisions in the same situation.

If his situation is as dire as it sounds, getting that paperwork sorted will save him — and anyone he loves — a lot of legal wrangling during any difficult times ahead. 

Also see: I’m 64 and was forced into retirement. Should I convert my $1.3 million to a Roth IRA? 

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