Annuities count as a resource, not income, so they can reduce or stop your SSDI payments if the cash value exceeds the resource limit

Social Security Disability Insurance (SSDI) has a resource limit of $2,000 for a single person and $3,000 for a married couple. An annuity—whether you bought it yourself or received it as part of a court settlement—counts toward that limit based on its cash surrender value, which is what the insurance company would pay you if you cashed it in today. If your annuity's cash value pushes you over the limit, Social Security will suspend your SSDI payments until the value drops back down.

This is different from how annuities affect Supplemental Security Income (SSI), which has the same resource limits but treats annuities more strictly. For SSDI, the resource rule is the main concern. The monthly payment you receive from an annuity counts as income in the month you get it, which can also reduce your SSDI check, but the resource value is what determines whether you stay on the program at all.

The timing and structure of your annuity matter enormously. A structured settlement annuity—money from a lawsuit paid out over time—is treated differently than a commercial annuity you purchased. Understanding which type you have and what Social Security knows about it can mean the difference between keeping your benefits and losing them.

Key Takeaways

  • Annuities count as resources based on their cash surrender value, and if that value exceeds $2,000 (or $3,000 if married), your SSDI stops until the value drops.
  • Monthly annuity payments also count as income and reduce your SSDI benefit dollar-for-dollar after the first $65 per month, plus an additional $20.
  • Structured settlement annuities from court cases may be excluded from resources under certain conditions if they cannot be cashed in early and meet other rules.
  • You must report annuities to Social Security; failing to do so can result in overpayments you will have to repay.
  • Some annuities can be modified or exchanged, but any change requires Social Security approval to avoid losing benefits.

How Social Security calculates the resource value of an annuity

Social Security does not use the face value of an annuity—the total amount it will pay out over its lifetime. Instead, it uses the cash surrender value, the amount the insurance company will give you if you terminate the contract today. This is typically much lower than the face value, especially early in the annuity's life, because insurance companies deduct surrender charges and administrative fees.

To find your annuity's cash surrender value, contact the insurance company directly or check your most recent statement. You will need to provide this number to Social Security when you report the annuity. Social Security will count this value as a resource in the month you report it and in every month afterward, unless the value changes. If the cash value drops—because you have withdrawn money or because time has passed and surrender charges have decreased—you can report the new value to Social Security, and your resource count will adjust.

If you own multiple annuities or other resources (a car, a house you do not live in, savings accounts, stocks), Social Security adds all of them together. The combined total is what matters for the $2,000 limit. Your primary residence and one vehicle do not count, but everything else does.

When annuity payments reduce your monthly SSDI check

Every month you receive an annuity payment, that payment counts as unearned income to Social Security. SSDI has an unearned income exclusion of $65 per month, plus an additional $20. This means the first $85 of unearned income each month does not reduce your SSDI. Anything above $85 reduces your SSDI dollar-for-dollar.

For example: if your SSDI benefit is $1,200 per month and you receive a $300 monthly annuity payment, Social Security counts $300 − $85 = $215 as income that reduces your benefit. Your new SSDI payment would be $1,200 − $215 = $985. If your annuity payment is $100 per month, it falls within the $85 exclusion, so your SSDI does not change.

This income reduction happens every single month you receive the annuity payment. It is separate from the resource limit. You can have a low cash surrender value (so you pass the resource test) but still have your monthly payment reduced because of the income rule.

Structured settlement annuities and the exclusion rules

If you received an annuity as part of a court settlement—for example, from a personal injury case or workers' compensation claim—it may may have access to for a structured settlement exclusion. Under federal law, structured settlement annuities can be excluded from resources if they meet three conditions: (1) the annuity was purchased with settlement proceeds, (2) you cannot cash it in or change it without a court order, and (3) the annuity is not assignable (you cannot sell it or transfer it to someone else).

If your structured settlement meets all three conditions, Social Security will not count its cash surrender value toward your $2,000 resource limit. However, the monthly payments you receive still count as income and will reduce your SSDI using the $85 exclusion rule described above.

Not all structured settlements may have access to. If you can cash in the annuity early, even with a penalty, or if you can change the payment schedule without court approval, it does not may have access to for the exclusion. You will need to provide Social Security with documentation from the insurance company or your attorney showing that the annuity cannot be altered or cashed in without a court order. Social Security will make the final information.

What happens if your annuity pushes you over the resource limit

If the cash surrender value of your annuity, combined with other resources, exceeds $2,000, Social Security will send you a notice that your SSDI is suspended. You will not receive a payment in the month your resources exceed the limit, and you will remain ineligible until the resource value drops back to $2,000 or below.

Your resources can drop in several ways: you can spend down other savings, the cash surrender value of the annuity can decrease over time (as surrender charges expire), or you can withdraw money from the annuity (though this may trigger taxes and penalties). Once your resources fall below $2,000, you can contact Social Security to report the change. Your SSDI will resume in the month after Social Security verifies the new resource level.

During the time your SSDI is suspended, you remain disabled and your work incentives remain in place. If you return to work and your earnings are low enough, you may still be able to use work incentives like the Plan to Achieve Self-Support (PASS) to set aside income and resources without affecting your benefits. However, you cannot receive SSDI payments while you are over the resource limit, regardless of your work status.

Reporting your annuity to Social Security

You must report an annuity to Social Security within 10 days of receiving it or becoming aware of it. You can report it by calling your local Social Security office, visiting in person, or using your my Social Security account online. Have the following information ready: the name of the insurance company, the policy number, the cash surrender value, the monthly payment amount (if applicable), and the date you received it.

If you fail to report an annuity, Social Security may discover it during a review or when processing other information. If you received SSDI payments you were not may have access to to because of the unreported annuity, you will owe that money back. This is called an overpayment, and Social Security will ask you to repay it. You can request a waiver of the overpayment if you can show you were not at fault and repaying it would cause hardship, but the burden is on you to prove this.

If your annuity changes—the cash value increases or decreases, the payment amount changes, or you cash it in—report the change to Social Security within 10 days. Keeping Social Security informed protects you from overpayments and ensures your benefits are calculated correctly.

Annuities and other benefits: Medicare and Medicaid

An annuity does not directly affect your Medicare coverage. If you have been on SSDI for at least 24 months, you are may have access to to Medicare regardless of your resource level. However, if your annuity causes your SSDI to suspend, you may lose your Medicare may be able to access after a grace period. Once SSDI resumes, Medicare resumes as well.

Medicaid is more sensitive to resources. In most states, Medicaid may be able to access for SSDI recipients is tied to SSDI may be able to access—if you lose SSDI because of an annuity, you lose Medicaid. Some states have more generous rules and may continue Medicaid even if SSDI suspends, but this varies. Contact your state Medicaid office to understand how an annuity would affect your coverage.

Modifying or exchanging an annuity

If your annuity is pushing you over the resource limit or reducing your monthly benefit significantly, you may wonder whether you can modify it. For commercial annuities you purchased yourself, you can often exchange it for a different product or cash it in, but doing so without Social Security's knowledge can create overpayments. Before making any change, contact Social Security and explain what you want to do. Social Security can tell you whether the change will affect your benefits and how to structure it to minimize impact.

For structured settlement annuities, modification is much harder. By definition, they cannot be changed without a court order. If you want to modify one, you will need to petition the court that issued the original settlement. This is expensive and time-consuming, and courts rarely approve modifications unless there is a compelling reason (such as a medical emergency). Do not attempt to modify a structured settlement without consulting an attorney first.

Frequently Asked Questions

If I inherit an annuity, does it count toward my resource limit?

Yes. An inherited annuity counts as a resource based on its cash surrender value. If you inherit an annuity and it pushes you over $2,000, your SSDI will suspend until the value drops. You must report inherited annuities to Social Security within 10 days of receiving them.

Can I use a PASS plan to set aside an annuity?

No. A PASS (Plan to Achieve Self-Support) allows you to set aside income and resources to pursue work or self-employment, but only if you are working or preparing to work. An annuity you are receiving passively does not may have access to. However, if you use annuity income to fund a legitimate work-related expense in your PASS, that portion of the income may be excluded.

What if my annuity payment varies month to month?

Report the actual payment amount you receive each month. If payments are irregular, contact Social Security to discuss how to report them. Social Security will count whatever you actually receive as income in that month. Keep records of all payments for your records.

Does a reverse mortgage count as an annuity?

A reverse mortgage is not an annuity, but if it pays you monthly, those payments count as income. The home itself does not count as a resource because it is your primary residence. Report reverse mortgage payments to Social Security the same way you would report annuity payments.

Can I give away my annuity to get under the resource limit?

No. Social Security has rules against transferring resources to become may be able to access for benefits. If you give away an annuity or other resource, Social Security may impose a period of ineligibility. This is called a transfer penalty. Do not attempt to reduce your resources by giving them away; instead, consult with a Social Security representative about your options.