If you receive Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), a personal injury settlement can raise important financial questions. Will your benefits be reduced or suspended? Could a lump-sum payment disqualify you from future support? These concerns are valid—and if you’re navigating a personal injury claim while on federal disability benefits, it’s important to understand the impact a settlement can have.
This guide breaks down how personal injury settlements interact with SSDI and SSI, how the Social Security Administration views different types of compensation, and what steps you can take to protect your benefits while still pursuing the compensation you deserve.
Understanding the Difference Between SSDI and SSI
Before discussing how settlements affect benefits, it’s important to clarify the distinction between SSDI and SSI—because they’re handled differently.
SSDI (Social Security Disability Insurance) is based on your work history and payroll tax contributions. It’s not means-tested, which means your assets or unearned income generally do not affect eligibility. However, certain types of income can still impact your benefit amount.
SSI (Supplemental Security Income), on the other hand, is a needs-based program. It’s designed for people with limited income and resources. Even modest personal injury settlements can affect your eligibility or reduce monthly payments.
Which program you’re on plays a significant role in how a settlement is treated by the Social Security Administration.
How Settlements Affect SSDI Benefits
If you receive SSDI benefits and win a personal injury settlement, the lump sum does not count as income that reduces your SSDI payments. This is because SSDI is tied to your work record—not your assets or unearned income.
However, SSDI recipients must be cautious about:
- Continuing Disability Reviews: Large settlements may prompt the SSA to re-evaluate your disability status, especially if they believe you can now afford long-term treatment or return to work.
- Medicare Benefits: If you’re eligible for Medicare due to SSDI, your settlement might affect future coverage—particularly if the settlement includes money for future medical expenses. In these cases, a Medicare Set-Aside (MSA) may be required to preserve eligibility.
An experienced attorney can help ensure that your settlement is structured to avoid triggering unnecessary reviews or complications with Medicare.
How Settlements Affect SSI Benefits
Unlike SSDI, SSI is directly tied to your income and assets. In 2024, the SSI resource limit is $2,000 for an individual and $3,000 for a couple. That means even a small settlement could put you over the threshold, making you ineligible for SSI benefits.
A personal injury settlement may affect SSI in the following ways:
- Lump-sum settlements are considered a resource in the month they are received.
- If not spent or legally protected, that money will count against the SSI asset limit and may cause temporary or permanent loss of benefits.
- Any monthly income generated from the settlement (such as interest or investment earnings) may also reduce your monthly SSI payments.
Fortunately, there are legal tools to help prevent disruption of benefits.
Special Needs Trusts and Settlement Planning
To avoid losing SSI benefits after a settlement, many recipients set up a Special Needs Trust (SNT). This legal arrangement allows settlement funds to be held and used for specific expenses without counting toward SSI asset limits.
With a properly drafted SNT:
- The money can be used for medical care, housing modifications, transportation, and other disability-related expenses
- The funds do not count as income or resources for SSI purposes
- Your eligibility for benefits remains intact
However, these trusts must be carefully structured and approved by the appropriate agencies. A mistake in the wording or setup could result in disqualification or delayed payments.
In some cases, a pooled special needs trust—managed by a nonprofit organization—can be used instead of a private SNT. This option may be more accessible for smaller settlements.
Medicaid and Long-Term Care Considerations
If you’re on Medicaid, which often works in conjunction with SSI, your settlement may affect your eligibility for healthcare benefits as well. Like SSI, Medicaid is needs-based and has strict resource limits.
Medicaid recipients should be cautious about:
- Spending the entire settlement quickly (called “spending down”), which can work temporarily but may cause issues if not carefully documented
- Using the money for non-exempt assets, like a second car or vacation, which could affect eligibility
- Failing to notify Medicaid of the settlement, which could lead to retroactive penalties or repayment obligations
In many cases, placing the settlement into a Medicaid-compliant Special Needs Trust is the safest option to protect long-term care benefits.
Reporting Requirements and Timelines
Regardless of your benefit type, the Social Security Administration must be notified when you receive a settlement. Failing to report can lead to overpayments, demands for repayment, and even fraud allegations.
When reporting:
- Be transparent about the settlement amount and terms
- Submit documentation such as the court order, release form, or trust agreement
- Work with your attorney to ensure the reporting is done within required timeframes (typically within 10 days of receiving the funds)
Early planning and full disclosure can prevent headaches down the road.
Can You Spend the Settlement Before It Affects Your Benefits?
If you’re on SSI and expect a settlement, you may wonder if you can “spend down” the money quickly enough to avoid asset limits. While this strategy can work, it must be done correctly.
Permissible expenses include:
- Paying off medical bills
- Purchasing a primary residence or accessible vehicle
- Prepaying funeral and burial expenses
- Home modifications for accessibility
However, giving away money or purchasing non-essential luxury items can trigger a penalty period or disqualification. Always consult a disability benefits attorney before making financial decisions after receiving a settlement.
Conclusion: Plan Ahead to Protect Your Benefits and Your Future
A personal injury settlement is meant to help you recover—not put your vital disability benefits at risk. But without proper legal guidance, that financial relief can quickly become a source of stress and confusion—especially when dealing with programs like SSI, SSDI, Medicare, or Medicaid.
At Alan Ripka & Associates, we understand the intersection of personal injury law and disability benefits. Our legal team works closely with financial planners and trust attorneys to ensure that your settlement is structured to preserve what matters most—your access to care, your long-term stability, and your legal rights.
If you’re receiving Social Security benefits and are pursuing or expecting a personal injury settlement, don’t wait. Call us today for a consultation. We’ll walk you through your options, help you protect your benefits, and fight for the compensation you deserve—without compromising your future.
