Warren Buffet, the professional and very successful investor and CEO of Berkshire Hathaway, has eight pieces of advice for novice investors. Second on the list is: “Invest in yourself first.” Although Buffet’s career IS investing, most of the rest of us are going to make most of our money not from the stock market or real estate, much less from some sophisticated financial derivatives strategy. Most of will make most of our money from working in our chosen career field. People with disabilities are no different in this regard. But for people with disabilities who receive means-tested benefits such as Supplemental Security Income (SSI) or Medicaid, including Medicaid waiver-funded services, it can be difficult to find the money to invest in oneself. This is because the eligibility for these benefits requires that the disabling conditions preclude the worker from earning more than $1,310/month. Moreover, any income the person does receive reduces her/his SSI. In addition, people receiving SSI and/or Medicaid may not accumulate more than $2,000 held directly in their own names if they want to remain eligible for those benefits.
An ABLE account is one way to deal with part of the problem of how to accumulate the financial resources to invest in oneself. People whose disability meets the Social Security definition and whose disability started before the age of 26 can open a tax-advantaged ABLE account. Funds held in an ABLE do not count at all for Medicaid eligibility purposes and do not count for SSI eligibility until they exceed $100,000. However, there is another challenge. Since people with disabilities who receive disability benefits, by definition, can earn and otherwise receive only limited income, there is seldom enough left over after paying basic living expenses to cover further education, skills training, or entrepreneurial endeavors. This is a problem that ABLE cannot solve. Income directed to an ABLE is still countable income for the purposes of benefits eligibility and, when talking about SSI, any income, received from other sources serves to reduce from the maximum the amount of SSI that a beneficiary can receive. There is a different tool, though, that can solve the conundrum of how to set aside a part of one’s income to invest in oneself, while still maintaining enough to live. This tool is a Plan to Achieve Self Support or PASS.
For example, Jean has a disability and receives some SSI. She also works 20 hours per week as an assistant at a day care. Currently, she has her high-school diploma, but in order to reach her goal of becoming a day-care teacher, she needs at least a certificate in child development, if not an associate degree. Jean wants to pursue an associate degree at her local community college. She calculates that tuition, fees, and books will total $15,000 over two years. Jean’s disability prevents her from driving and there is no accessible public transportation route that goes near the campus. Jean will need to take an Uber. She estimates the Uber fares will total $3,500 for the two years. Jean will also need to purchase a laptop, which will cost $800. The total cost of Jean’s associate degree will be $19,400. Jean writes a PASS detailing the purpose, itemized cost, and specific timeline for her gaining her associate degree. She includes in the PASS an expectation that her hourly wage will go from $11/hour as an assistant to $20/hour as a daycare teacher with a degree. Moreover, she expects go from working 20 hours/week to working 35 hours/week. Jean submits her PASS to the Social Security Administration, and it is approved.
At $11/hour and 20 hours per week, Jean’s countable income equals her gross monthly income less $85 of allowable earned income exclusion with the remainder divided by two. Jean’s countable earned income of $431 means that, before she created her PASS, the maximum SSI that she could receive was the full rate of $794/month - $431 or $363 of SSI. Jean begins to allocate $500/month to her PASS. The contribution to the PASS is deducted from her countable income, bringing it to $0. Now, Jean is eligible for the entire $794 of SSI. Prior to creating her PASS, Jean had her full earned income of $946 plus her SSI of $363 for a total of $1,309 of disposable income. While she is funding her PASS, Jean has the $446 of earned income that she is not contributing to the PASS, plus the full $794 of SSI for a total of $1,240 of disposable income to live on. She has traded a mere $69/month of disposable income towards daily living expenses for the opportunity to invest $500/month in herself with the expectation of a better career and higher income.
Another example is Ted. Ted has a disability and currently receives Social Security Disability Insurance (SSDI) of $820. Ted works part time at a cloth printing shop and earns $500/month. Between his SSDI and his earned income, Ted is ineligible for SSI because his SSDI alone, as countable unearned income, would reduce his SSI dollar for dollar after the first $20 and $820 - $20 = $800, which is higher than the maximum SSI payable of $794. Ted would like to launch his own business designing and printing custom T-shirts. Ted creates a PASS to start his business. Start-up costs include $6,000 for the cloth printer, $500 for ink, $800 for blank T-shirts in various colors and $2,000 for advertising. Initially, Ted will work out of his basement, so there is no additional cost for space. Ted writes a PASS detailing the purpose, itemized cost and specific timeline for launching his business. Ted’s plan is approved.
Ted begins to contribute $700/month to his PASS. Now, Ted’s countable unearned income = $820 – $20 - $700 or $100. Ted’s countable earned income =$500 – 85)/2 = $208. Note that the income excluded because it is contributed to the PASS is deducted from unearned income. This is more beneficial to the recipient because unearned income reduces SSI payments dollar for dollar, but earned income only reduces them by 50 cents on the dollar. Had Ted had less or no unearned income, the balance of the contribution would have been deducted from his countable earned income. Ted’s total countable income of $308 means he now qualifies for $794 - $308 or $486 of SSI. Prior to implementing his PASS, Ted had disposable income of $820 + $500 or $1,320. Now, he has disposable income of $120 (the SSDI not allocated to the PASS) + $500 of earned income + $486 of SSI for a total of $1,106. This is a noticeable reduction in the funds that Ted can spend on general living expenses, so he must make sure this is feasible before he creates the PASS. If it is, however, he has given up $214/month of general living expenses to invest $700/month in his future.
PASS is not for everyone. People who receive only SSI and have no SSDI, earned income, or other unearned income cannot make use of a PASS because SSI itself must be used for food and shelter and cannot be contributed to a PASS. For others, contributing to a PASS, while useful for long-term development, might not leave them enough money to live on in the present. But for those who can use them, PASS is an excellent way for people with disabilities to take up Buffet’s challenge of investing first in themselves.