Source: Social Security Administration.
Most people think of Social Security as a retirement program,
but disability benefits are also a huge part of Social Security.
An estimated 8.8 million Americans receive Social Security
disability benefits, with 2 million more dependents relying on
the program to help make ends meet.
One of the most confusing things about Social Security
disability is what happens after you reach retirement age. For
many disabled Americans, shortened work histories mean that
retirement benefits would ordinarily be unavailable or
insufficient to meet their financial needs. But in figuring
retirement benefits for the disabled, Social Security doesn't
follow the same formula that it uses for most retirees.
Why retirement scares Social Security disability
The biggest concern that those receiving Social Security
disability have about reaching full retirement age, which is
currently 66, is that their benefit amounts will go down. The
reason has to do with the way that disability and retirement
benefits are calculated.
Specifically, in determining how much you receive in
disability benefits, Social Security takes a look at your average
lifetime earnings during the period before your disability began.
It then uses a formula to come up with what's called the primary
insurance amount, which is the base for determining how much
you'll get from Social Security.
In many ways, the calculation of disability benefits closely
resembles how Social Security determines retirement benefits. But
the big difference is in the length of work history that gets
considered. For more retirees, Social Security looks at a 35-year
work history, and if you've worked less than that, then Social
Security fills in the blanks with zeroes. That has the effect of
bringing your average earnings down, and it therefore produces a
lower primary insurance amount and reduces the benefits you'd
Source: Social Security Administration.
Obviously, for those who have been disabled for a long time,
accumulating a 35-year work history is impossible. Many
disability recipients therefore dread the possibility that their
Social Security payments will go away or be greatly reduced when
they qualify for retirement benefits.
What happens with Social Security disability recipients at
The Social Security Administration recognizes that concern,
and it takes into account the impact that disability has on
income potential. Specifically, as the SSA spells out
, when you reach full retirement age, if you're still receiving
disability benefits, then they automatically convert into
retirement benefits. However, even though they're technically
paid out of a different part of the Social Security program, the
amount remains the same as it was before, based on the formulas
that govern how much you received in disability benefits. In
essence, for disability recipients, Social Security ignores the
35-year work history rule and only considers work history prior
In addition, even if you're not disabled at the time you
retire, many individuals qualify for what the SSA calls a "
." By applying for the disability freeze, you can ask Social
Security to ignore your periods of disability in their
calculations for retirement and survivors' benefits. That in turn
makes sure that you're not penalized for those zero-earnings
years even if you're able to overcome your disability and return
to work later in your career.
1 special rule for early retirees
Interestingly, there's a special rule that applies for those
who become disabled and then apply for early retirement benefits
under Social Security. If you became disabled, started collecting
early retirement, and
had your disability application approved by the SSA, then you'll
continue receiving your Social Security retirement payments, but
you'll also get disability benefits that are enough to bring you
to the full amount of the monthly payment you're entitled to
receive. Moreover, when you reach full retirement age, you'll
receive full retirement benefits as if you had never filed for
early retirement benefits.
Note well, though, that this doesn't apply if you were
collecting early retirement benefits before you were disabled. In
that case, you'll receive disability payments, but your
retirement benefits at age 66 will go back to their reduced
amount based on your having started collecting them early.
In general, most Americans receiving disability benefits won't
face the huge financial challenges they fear once they reach full
retirement age. Continuing to get payments at their previous
level isn't always the perfect solution, but it's far better than
losing benefits entirely.
How to get even more income during retirement
Social Security plays a key role in your financial security,
but it's not the only way to boost your retirement income. In
our brand-new free report, our retirement experts give their
insight on a
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Social Security Disability: What Happens When You
originally appeared on Fool.com.
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