Annuities reduce your SSDI payment dollar-for-dollar once you reach the resource limit
An annuity is a financial product you buy from an insurance company that pays you a fixed amount each month for a set period or for life. The Social Security Administration counts the value of an annuity as a resource — meaning it counts toward the $2,000 resource limit for SSDI (or $3,000 if you are married and both receive SSDI). Once your total resources exceed that limit, you lose SSDI payments that month.
The key distinction: the monthly payment you receive from an annuity is counted as income, which also reduces SSDI but in a different way. Income reduces your payment by $1 for every $2 you earn above $1,550 per month (the 2024 limit; this changes yearly). The annuity's cash value — what you could sell it for today — is what counts as a resource and can disqualify you entirely.
If you own an annuity and are receiving SSDI, you need to report it to Social Security. Failing to report it can result in overpayments you will have to repay, plus potential fraud penalties.
Key Takeaways
- An annuity's current cash value counts as a resource; if your total resources exceed $2,000, you lose SSDI that month.
- The monthly income from an annuity also reduces your SSDI payment separately, by $1 for every $2 earned above the monthly income limit.
- You must report any annuity you own to Social Security, even if you are not yet receiving payments from it.
- Some annuities can be structured to avoid counting as a resource if they meet specific Social Security rules about payment schedules and non-assignability.
How Social Security values an annuity as a resource
Social Security does not care what you paid for the annuity. It cares what it is worth now — the amount an insurance company would pay you if you surrendered it today. This is called the cash surrender value. If you own an annuity with a cash surrender value of $1,500, that $1,500 counts toward your $2,000 resource limit, leaving you only $500 in other resources (savings, stocks, vehicles over $4,650, etc.) before you exceed the limit and lose benefits.
Some annuities have no cash surrender value — meaning you cannot cash them out early. These are called non-commutable annuities. If your annuity truly cannot be cashed in or transferred to anyone else, Social Security may not count it as a resource. However, this is rare and requires documentation from the insurance company stating the annuity cannot be surrendered or assigned. Most annuities sold today can be cashed in, so most count.
You will need to contact your insurance company and ask for the current cash surrender value in writing. Bring this letter to Social Security when you report the annuity.
Income from an annuity payment reduces SSDI separately
The monthly payment you receive from an annuity is treated as unearned income by Social Security. In 2024, the first $1,550 of unearned income per month does not reduce your SSDI payment. Above that, your SSDI payment drops by $1 for every $2 you receive.
Example: You receive $1,200 per month from an annuity and $800 per month in SSDI. The annuity income is below the $1,550 limit, so it does not reduce your SSDI payment that month. If the annuity paid $2,000 per month instead, the $450 above the limit would reduce your SSDI by $225 that month.
This income limit changes each year. Social Security publishes the new limit in December for the following year. You can find the current limit on the Social Security website or by calling 1-800-772-1213.
Reporting an annuity to Social Security
You must report an annuity within 10 days of receiving it or purchasing it. Call your local Social Security office or the national number (1-800-772-1213) and tell them you own an annuity. Have the following information ready:
- The name of the insurance company that issued the annuity
- The policy or contract number
- The current cash surrender value (get this in writing from the insurance company)
- The monthly payment amount you receive, if payments have started
- The date you purchased or received the annuity
- Whether the annuity is in your name only or jointly owned
Social Security will send you a form to complete. You may also be asked to provide a copy of the annuity contract or a letter from the insurance company confirming the cash value and payment terms. Keep copies of everything you send.
When an annuity might not count as a resource
Social Security has a narrow exception for certain annuities. If your annuity meets all of these conditions, it may not count as a resource:
- It cannot be cashed in or surrendered (non-commutable)
- It cannot be assigned or transferred to anyone else
- It pays a fixed amount each month for a fixed period or for your lifetime
- You did not purchase it specifically to avoid the resource limit
This exception is difficult to meet. Most commercial annuities can be surrendered or assigned, which disqualifies them. If you believe your annuity meets these conditions, bring the contract and a written statement from the insurance company to your Social Security office. Social Security will review it and make a information.
Do not assume your annuity qualifies. Report it and let Social Security decide. If you are wrong and do not report it, you will owe back any overpayments.
What happens if you exceed the resource limit
If your annuity cash value plus all other resources exceeds $2,000 in any month, you will not receive an SSDI payment that month. You remain on the SSDI rolls, meaning you keep your Medicare coverage and your case stays open. Once your resources drop back below $2,000 — for example, if you spend down the annuity or it matures and stops — your SSDI payments resume the following month.
Social Security does not automatically know your resources have changed. You must report the change within 10 days. If you do not report and Social Security discovers the overpayment later, you will have to repay the full amount of SSDI you received while over the limit. This can be done through benefit withholding (Social Security holds back future payments) or a repayment agreement.
Planning ahead if you own or are considering an annuity
If you receive SSDI and own an annuity, or are thinking about buying one, talk to a benefits planning counselor before making any moves. These counselors work for organizations funded by Social Security and offer free guidance on how financial decisions affect your benefits. You can find one through your state vocational rehabilitation agency or by calling your local Social Security office.
A benefits planner can help you understand whether an annuity will push you over the resource limit, whether the monthly income will reduce your SSDI payment, and whether there are other savings options that would not affect your benefits. They can also help you understand the rules around non-commutable annuities if that applies to you.
If you have already purchased an annuity and are now receiving SSDI, do not try to hide it or delay reporting it. The sooner you report, the sooner Social Security can tell you exactly how it affects your payment, and the less likely you are to face an overpayment situation.
Frequently Asked Questions
Will my annuity payment count as income every month?
Yes. Every month you receive an annuity payment, Social Security counts it as unearned income. If the payment plus any other income exceeds $1,550 per month, your SSDI payment will be reduced. The income limit changes yearly, so your reduction amount may change too.
Can I transfer my annuity to someone else to avoid the resource limit?
No. Social Security will count a transfer as a resource disposal, which can result in a penalty period during which you receive no SSDI. Additionally, if you transfer an annuity to avoid the resource limit, Social Security may view it as fraud. Report the annuity as it is.
What if I inherited an annuity from a family member?
An inherited annuity counts the same way as one you purchased. The cash surrender value counts as a resource, and any payments you receive count as income. You must report it to Social Security within 10 days of inheriting it.
Does a structured settlement count as an annuity?
A structured settlement is a type of annuity, and it counts toward your resource limit if it has a cash surrender value. However, some structured settlements are non-assignable and non-commutable, which may exempt them. Bring the settlement agreement to Social Security so they can review it.
What if I need money and want to cash in my annuity?
If you cash in an annuity, the lump sum counts as income in the month you receive it, which will likely reduce or eliminate your SSDI payment that month. It also temporarily increases your resources. Talk to a benefits planner before cashing in an annuity, because the timing and amount matter significantly.