Social Security -- Disability Law
A Guide to Investing with Limited Income
There are plenty of websites and television shows with great advice for how to invest, what stocks are booming, and how to play the market. Unfortunately, most of these resources are aimed at people with steady and disposable income. You know that investing is important for your future and can help provide for you and your family. How are you supposed to invest on such a limited income? This can be especially difficult for people living on a fixed income like Social Security Disability Insurance (SSDI).
Disability should not prevent you from being able to invest in your future. If you have any other questions about your SSI or SSDI benefits and whether you can invest and still keep your benefits, contact your Social Security Disability lawyer for help.
One of the challenges for people on disability is that there is a limit on how much income you can earn before losing your disability benefits. Fortunately, this does not apply to investments. The income limit applies to “earned” income. Dividends and capital gains from stocks are “unearned income,” and do not count toward the income cap.
Making too much earned income while disabled could mean you will be turned down for SSDI benefits. However, unearned income is not subject to those limits. According to the Social Security Administration unearned income covers payments like:
- Social Security benefits
- State disability payments
- Unemployment benefits
- Interest income
- Cash from friends and relatives
Any money you earn from stocks, bonds, funds, and other investments made before, during, or after receiving disability generally does not count as compensation. As you know, it can be difficult to survive just on SSI and SSDI benefits. Investments can make a big difference in helping to provide for your basic needs.
With a limited income, it can seem impossible to find a few hundred dollars to start investing. Even without investing, you may need to put some money aside for an emergency. Before thinking about how to save up thousands of dollars, start with $5 here and there.
The first step may be budgeting. It is difficult to know where to save money when we don’t know exactly where our money is going. Tracking expenses, purchases, income, and payments over the course of a couple of months is often an eye-opener for many people. There are even free online or app-based tools to help you budget your finances.
If you are in debt, it is important to compare the rates of return to your interest rates before you start investing. If you have high-interest debt, it may be better to pay that off before investing in the market. Paying down high-interest debt can be much more profitable than buying a well-performing stock. If you have low-interest debt, you may decide to set aside some of your extra money to invest. However, make sure you still have enough to make your monthly payments to avoid penalties.
One of the most common problems for first-time investors is navigating the sea of stocks, funds, bonds, and ETFs. A stock or fund that someone recommends may actually come with high fees and commissions. Without diversifying, those fees can eat up any benefits. Some accounts charge higher fees for making a purchase or trade that can take a sizable chunk out of your limited investments.
With a limited income, you may want to look for lower fee options and low- or no-fee transactions. Some investment plans allow you to start your investment account with smaller amounts of money. Some options for investors with limited disability income include:
- Roth IRA
- Index funds
- Target Date Funds
A Roth IRA is an individual retirement account where the money you take out at retirement is not taxable. Roth IRAs are not tax-deductible like a traditional IRA, but that can be beneficial when you are on a limited income.
Index funds can be a low-fee investment into a type of market. This is usually made up of a collection of stocks and bonds that follow a specific industry or sector. Before investing, make sure to consider the minimum investment amount and fees.
A DRIP is a dividend reinvestment plan. When a company you invest in pays cash dividends, the money is reinvested into the company through purchasing more stock. One of the benefits of DRIPs is that you can acquire more stock without paying additional commissions or fees.
An ETF is an exchange-traded fund. This is a security that follows a market sector or index but you can buy or sell it as a single fund. ETFs may have lower average costs because you share in a collection of investments instead of buying a number of individual stocks.
A target-date fund is an investment that is aimed at a set retirement date for the investor. One of the benefits for new investors is that this is supposed to be a sort of “set-it-and-forget-it” investment. However, investors still need to keep a close eye on their investments, especially when it comes to fees and long-term performance
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