Many disabled people who are nearing retirement worry about what will happen to their Social Security Disability Insurance (SSDI) or retirement benefits once they reach Full Retirement Age. If you’re wondering, “How does SSDI affect my retirement benefits?” then keep reading below.
Your Social Security disability payments automatically convert to retirement benefits after you reach full retirement age. However, do keep in mind that you cannot receive both Social Security Disability and retirement benefits simultaneously unless you choose to retire early.
Keep reading below for more information.
What Are Social Security Disability Benefits?
Under the Federal Insurance Contributions Act, a large chunk of income, known as income tax, Federal Insurance Contributions Act (FICA) tax, or Old-Age, Survivors, and Disability Insurance (OASDI) tax, goes into various benefits, such as spousal, survivor, or retirement benefits. A portion of these funds also goes into the Disability Insurance (DI) program, which then covers disability payments or benefits for those who are eligible.
In order to be eligible for SSDI benefits, an applicant needs to have worked for a certain period of time during his entire employment history. This employment must have included jobs that also paid into Social Security disability.
In general, you need to have 40 work credits in order to be eligible. And 20 of these work credits must have been collected during the last 10 years of employment, counting backward from when you became disabled.
SSDI benefits are not the same as Supplemental Security Income (SSI). SSI is intended for individuals on a financial need basis and does not consider their employment history. The payouts and qualification requirements for the two programs are also very different.
Social Security Disability Evaluation Process
The Social Security Administration (SSA) carefully evaluates the medical conditions of each applicant to determine whether or not they qualify for disability benefits. This exempts those individuals whose condition is so severe that their benefits are approved without any evaluation.
The evaluation process is based on a few factors, including:
Employment
SSDI is intended for those who are unable to work due to their debilitating medical condition. If you are currently working and earning more than Social Security allows, then the Social Security Administration will not consider you disabled and therefore, you will not be granted disability benefits.
Severity of Condition
Since this program is meant for individuals whose disability is severe enough to prevent them from working, if your medical condition does not interfere with your employment or other work-related tasks then the Social Security Administration will grant you disability benefits.
List of Conditions
The SSA has a blue book list of medical conditions. If your medical condition is included on that list, and if you meet the strict requirements of the relevant listing, then you will automatically be granted disability benefits without any further evaluation. If not, then the SSA will determine the severity of your condition. If it finds your medical condition to be severe enough, then you will be granted disability benefits.
Previous Work
When evaluating your employment history, the SSA will consider whether you are still able to return any previous employment. If your medical condition prevents you from doing your previous work, then the SSA will consider you disabled.
Any Other Work
After evaluating your previous employment history, if the SSA finds that you are unable to resume your past work, they will move on to other types of work. They will effectively evaluate whether you have the skills and capabilities for doing any other kinds of work that is available in the national economy.
In doing so, they consider your medical condition, age, education, previous employment history, and various other factors. If the SSA finds that you are able to adjust to any other type of work, then your claim will be denied, and you will not be considered disabled.
How Are Social Security Disability Benefits Calculated?
The amount of your SSDI payments is based on an average of the entire earnings from your employment history up till the point you became disabled.
Your eligibility will not be affected by the amount of assets that you have or lack of income; however, the amount that will be calculated might be affected by some other sources of income that you may have.
The average indexed monthly earnings must fall within a predetermined period of time. Also, your earnings will only be considered if you worked at a job that paid into the SSA from a portion of your income. If you did not work at a job that paid into the SSA, then your earnings will not be considered. This may eventually reduce the number of benefits that you get awarded.
What is the Difference Between Disability and Retirement?
Although both of these programs are intended to provide financial assistance to those in need who can no longer work, there are some differences between disability and retirement benefits.
The programs have varying criteria for their applicants. The differences between these criteria will be discussed in this section.
Disability Benefits Eligibility
In order to qualify for SSDI payments, the applicant’s medical condition must actively prevent them from staying employed. The applicant must also be unable to engage in any Substantial Gainful Activity (SGA). Furthermore, the condition must either have lasted or be expected to last for one year or more, or it may be expected to result in death.
Furthermore, in order to be eligible for SSDI, the applicant needs to have accumulated a total of 40 work credits, 20 of which need to have been collected during the last 10 years of employment. Since income taxes pay for SSDI, only those earnings will be considered as having been paid into the SSA.
Retirement Benefits Eligibility
The Social Security Administration (SSA) provides a variety of monthly payments to qualified Americans, including retirement benefits, SSI, and SSDI. You can start receiving retirement benefits from Social Security at age 62 if you have paid into the system through federal taxes and earned sufficient working credits to qualify.
Your monthly benefit is determined by your earnings history, your retirement age, and whether or not you choose to continue working.
Your monthly benefit will increase if you wait until your full retirement age (for those born after 1960, age 67, and an additional 2 months after that). In addition, you can maximize your monthly retirement benefits if you are able to continue working until age 70. If you are eligible for retirement benefits and start receiving them, you will keep getting them for the rest of your life.
How Does SSDI Affect My Retirement?
Here are some ways that SSDI can affect your retirement benefits.
You Can Not Receive Both
You cannot be eligible for both SSDI and retirement benefits simultaneously. The rare exception applies to early retirement. If you have retired early and then applied for SSDI, the SSA will determine whether or not you are eligible for disability benefits.
If you were found to be eligible for SSDI after taking early retirement, then the difference between your early retirement benefits and monthly disability payments will be covered by the SSA. Of course, you must provide sufficient proof that you retired early due to your disability.
It’s also important to remember that certain people can receive monthly payments from multiple Social Security programs. In some cases, you may be eligible for multiple forms of financial aid at once.
Your SSDI Turns into Retirement Benefits
Once approved for disability benefits, your monthly payment generally won’t change, with the exception of annual cost-of-living adjustments. If you’re not sure whether you’re ready to make the leap back to employment fully, you can try working part-time while on disability or exploring other options, such as a trial work period.
Beneficiaries can easily make the transition from receiving disability payments to receiving retirement benefits since their monthly benefit remains the same in both cases. The Social Security Administration treats your SSDI benefits as though you had already reached full retirement age.
At this point, your benefit would be increased to its maximum amount, based on your lifetime earnings.
Pensions and SSDI
In most cases, your pension is unlikely to be reduced by receiving disability benefits, but the amount of your disability payments each month may be affected by your pension. Your pension and the type of disability benefits you receive determine how much you will receive from Social Security Disability (SSD).
The amount of your monthly SSDI benefit and your ability to qualify for SSDI are not affected by the amount of money you receive from most private pensions or government pensions. As a result, you can receive your full monthly SSDI benefit amount in addition to your pension payment, as most pensions are not exempt from Social Security taxes.
Nevertheless, there are times when this isn’t the case, and they include:
- Retirement benefits for civil servants
- Pensions and long-term disability plans that cover specific disabilities
Should I Get Early Retirement?
Early retirees are the only people who can collect Social Security Disability Insurance and retirement benefits at the same time. You can retire early once you reach age 62, but you’ll have to pay a penalty in the form of a permanent reduction of your monthly benefit amount of up to 30%.
There is no penalty for taking early retirement if you are subsequently found disabled under the SSDI program, and you can collect both benefits. The following conditions must all be met for the exception, in the following order:
To receive both early retirement and SSDI benefits, you must (1) retire early, (2) apply for them after retiring, and (3) have the Social Security Administration determine that your disability began before you retired early.
If you meet these requirements, the Social Security Administration (SSA) will cover the gap between your full disability award and your early retirement benefit. The Social Security Administration will also pay you the difference for the time you were unable to work but were waiting to receive SSDI benefits.
When you reach retirement age, your Social Security Disability payments will automatically switch over to your full retirement benefit.
For the sake of argument, let’s say that your health problems are making it hard for you to hold down a job. You decide to retire at age 62 and collect $1,000 in early retirement benefits. Your disability onset date is established many months prior to your retirement, and a year later you receive $1,300 in SSD benefits.
The Social Security Administration has determined that your disability began before you chose early retirement, so it will pay you $1,000 per month in early retirement benefits in addition to $300 per month in SSDI benefits. In addition to the monthly SSDI benefit, the SSA will pay you $300 retroactively for every month that you were eligible but did not receive payment.
You will also no longer be subject to the early retirement penalty if you receive SSDI benefits after reaching full retirement age.
If your health prevents you from working, you may be tempted to retire early and then apply for disability benefits to get by until your application is processed. There is no guarantee that your application will be accepted, which could leave you with a permanently reduced retirement benefit.
Can I Receive Both SSDI Retirement Benefits and SSI?
Supplemental Security Income payments do not transform into retirement benefits upon reaching retirement age as SSDI payments do. The Supplemental Security Income program helps low-income seniors and people with disabilities in the United States.
However, unlike SSDI, Supplemental Security Income and retirement benefits can be received simultaneously. In other words, when you reach retirement age, your monthly benefit amount will remain unchanged. Retirement and SSI payments will both contribute to this total.
To ensure you get all the retirement benefits you are entitled to, your disability lawyer can guide you through the necessary steps.
Conclusion
So, how does SSDI affect retirement? Well, if you’re currently a Social Security Disability beneficiary nearing retirement, you don’t have much to worry about. Your monthly benefits will remain largely unchanged.
