Inflation is Making SSI Recipients Choose—Spend Their Savings or Lose Benefits - Investopedia

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Nicholas Hemachandra loves his job at the Howdy Homemade ice cream shop in Asheville, North Carolina, but a federal rule is forcing him to cut back on his hours.

Hemachandra, 22, is autistic and receives Supplemental Security Income, a benefit for people with disabilities that provides an income of up to $914 a month, an amount less than minimum wage. But recipients must have less than $2,000 in total assets ($3,000 for a couple), or else they can lose their benefits. That doesn’t include a house or a car, but does include things like savings accounts, retirement accounts, and other financial instruments. 

Key Takeaways

• A federal rule prevents recipients of Supplemental Security Income (SSI) with disabilities from saving more than $2,000. 
• The SSI resource limit hasn’t been changed since 1989 and hasn’t kept up with inflation. 
• SSI recipients often face the choice of spending away their savings or losing the income—up to $931 per month—that SSI provides. 
• The limit prevents people with disabilities from saving for emergencies and forces them to live on the edge of poverty, advocates say. 
• Democratic senator Sherrod Brown is reintroducing a bill to relax the limit and allow up to $10,000 in savings.
  

Hemachandra works part-time at the ice cream shop—a Dallas-based chain that staffs its locations with workers with intellectual disabilities, where he makes $8 an hour and tips from customers. In June he made $296.41. Most everything he makes, he must spend, or else he risks being cut off from SSI.

The SSI limit hasn't kept up with inflation, and $2,000 buys far less than it did when it was set in the 1970s.

When the program was founded, it had a resource limit of $1,500—worth six times as much as today’s limit after accounting for inflation, according to a June research report by the Center on Budget and Policy Priorities, a progressive think tank.

The government program is likely going to be Hemachandra’s main source of income for the rest of his life since his disabilities make it unlikely that he could support himself by working, his father, Ray Hemachandra said. 

The younger man is cutting back on his hours for fear of accumulating too much money and being cut off from SSI—something that happened to more than 80,000 people in 2021 according to the Social Security Administration.

“They really force you to spend your money, otherwise you may lose eligibility for the program,” Ray Hemachandra said. “The hope is that he can have his own apartment so that someday when something happens to me, he can get a life going of his own that works. An asset limit of $2,000 stops him from doing pretty much anything. You can't buy a couch for $2,000, or you barely can. It would run through your savings almost immediately and it becomes incredibly difficult to navigate.”

Decades Out of Date

The SSI program was established in 1972 and provides benefits to nearly 5 million people including 991,000 children, who must prove they are disabled to enroll. In addition to the resource limit, recipients also have their SSI income reduced if they earn money by working. 

Fear of going over the asset limit has caused clients of the Arc of the United States—a nonprofit group that serves people with intellectual and developmental disabilities and those caring for them— to work fewer hours or even to turn down bonuses or promotions. The asset limits have become especially burdensome in recent years because the cost of living has increased so rapidly, Milburn said.

“Inflation made those asset limits even more acute and salient for people with disabilities as they tried to save money to keep up with higher grocery costs, housing costs, transportation costs, and other things,” she said.

The asset limit also makes it challenging for recipients to deal with emergencies. Things like car and home repairs often exceed $2,000, forcing SSI beneficiaries to use costly forms of credit such as payday loans to cover them, Milburn said. 

“We are punishing people for having extremely modest savings that they should have in order to maintain their financial security in the event of an emergency,” she said.

SSI recipients do have ways to save while getting around the resource limit. For example, ABLE accounts, allowed by Congress starting in 2014, are tax-advantaged savings accounts for people with disabilities that don’t count toward the SSI resource limit. However, only 137,000 people have set one up, according to data from the National Association of State Treasurers.

The existence of ABLE accounts is little known and poorly understood by eligible SSI recipients and wealthier households are much more likely to use them, according to a yet-to-be-published paper by researchers at the University of Chicago, cited by the CBPP’s report.

“Living On a Financial Knife’s Edge”

Researchers and disabled advocates say the resource limit, which hasn’t been changed since 1989, forces people to live in poverty for no good reason and have called for it to be changed or eliminated. 

The limit is a form of means testing—a way to ensure that benefits are only going to people who truly need them—but advocates say it’s an especially crude, inefficient and outdated one.  And it's especially stinging at a time when households are reeling from two years of steep price increases for the necessities of daily life.

A bipartisan pair of senators from Ohio—Democrat Sherrod Brown and now-retired Republican senator Rob Portman—introduced a bill last year that would raise the limit to $10,000 and make the resource limit indexed to inflation so that the limits will rise along with the cost of living.

Brown is planning to reintroduce the bill sometime this summer, according to a spokesperson for the senator who confirmed previous media reports. The Arc said they are working with Brown’s office to reintroduce the bill. 

“It's forcing people to live on a financial knife's edge, and it's forcing them into a state of very severe financial precarity,” said Darcy Milburn, Social Security and healthcare policy director at The Arc. “The stakes of losing SSI can be catastrophic. Without SSI many beneficiaries could face homelessness or be forced into institutions.”

Punished For Saving

Brown’s bill would simplify the program for recipients and the Social Security Administration itself. Monitoring beneficiaries’ resources, suspending payments and then later restarting them is costly and time consuming for the understaffed and overworked agency, the CBPP argued.

“We shouldn’t punish seniors and Ohioans with disabilities who do the right thing and save money for emergencies by taking away the money they rely on to live,” Brown said in a statement quoted by CNBC. “I plan to reintroduce my bill that would update these rules for the first time in decades to allow beneficiaries to save without putting their benefits at risk.” 

Relaxing the rules would have a big impact on recipients like the Hemachandras. Ray Hemachandra said he fears what will become of his son when he is no longer there to help him navigate the complex bureaucratic rules that determine whether he can pay for his basic needs.

“Because someone has intellectual developmental disabilities, we should not be positioning them for being at risk their entire lives,” Ray Hemachandra said. “We should be trying to position them for having lives that have the possibility of well being and options for joy.”

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