If you receive Social Security Disability Insurance (SSDI), you’ve probably worried at some point about losing benefits. After all, the application process is notoriously long and cumbersome. If you’re nearing retirement age, those fears may become more pronounced. So what exactly happens to your SSDI when you reach retirement age?
The good news is that you won’t lose those monthly checks. Read on to learn what happens to Social Security disability when you retire.
How Social Security Disability Benefits Work
To qualify for Social Security Disability Insurance (SSDI), you must have an illness or impairment that severely affects your ability to work. You’ll also need to provide evidence that your disability is either expected to last for at least a year or result in your death.
Essentially, SSDI benefits follow a similar formula as the one used for Social Security retirement benefits. Whether you’re receiving disability or retirement benefits, Social Security uses your earnings record to arrive at what’s known as your primary insurance amount. (In Social Security jargon, “primary insurance amount” means 100% of your retirement benefit.) Retirement benefits are calculated using your highest 35 years of earnings. Disability benefits are based on your average earnings before you became unable to work.
In a nutshell, Social Security calculates your disability benefit as if you’d reached full retirement age. That’s when you get your primary insurance amount, or 100% of your benefit. For anyone born in 1960 or later, full retirement age is 67. But remember: If you meet Social Security’s strict definition of disabled, it’s as if you’re already at full retirement age. So let’s say you become disabled at 55. Social Security would still give you the benefit you’d normally get at full retirement age.
Despite the fact that you get your full Social Security benefit when you’re approved for disability, the average SSDI benefit is about 21% lower than the average retirement benefit. The reason? Your earnings tend to rise over time, so disabled workers often miss out on those higher-earning years.
Most SSDI recipients are eligible for Medicare 24 months after they qualify for disability benefits.
What Happens to SSDI When You Reach Retirement Age?
When you reach full retirement age — which is 66 or 67, depending on when you were born — your disability benefit will automatically convert to your retirement benefits. Since you’re already getting your full retirement benefit, typically your monthly checks will be for the same amount.
But a lot of people take retirement benefits long before their full retirement age. You’re eligible for Social Security retirement benefits as early as age 62, though you get a reduced amount.
If you’re getting disability benefits when you become eligible for retirement benefits, it probably won’t make sense to start retirement benefits early. Because you’re already getting your full benefit, your monthly checks would shrink. For example, if you switched to retirement benefits right at age 62, your benefits would be about 30% lower.
But if you take Social Security early and then become disabled, you could become eligible for a higher disability benefit. Suppose you start benefits at 62 but continue working while collecting Social Security. Then you become ill at age 64. If your disability claim is approved, your benefit would increase to your full retirement benefit.
Because the process of getting approved for SSDI is often so long, many workers who become disabled will take Social Security early. Then, if their disability claim is approved, they’ll switch to the higher amount. Be cautious about pursuing this strategy, though. If your claim is denied, you’ll have to live off of a permanently reduced benefit. It’s a good idea to talk to a Social Security attorney before you proceed.
Can You Collect SSDI and Social Security at the Same Time?
No. Social Security will give you whichever is higher: your disability benefit or your retirement benefit, but not both. Most of the time, these two benefits will be the same. But there are a few circumstances where one benefit could be higher than the other.
For example, if you receive worker’s compensation, you’ll often qualify for less money from SSDI. In that case, you could expect to receive more from your retirement benefit.
Can You Increase Your Social Security Benefit When You Reach Retirement Age?
Once you reach full retirement age and you’re receiving Social Security benefits, you can suspend your benefit to get a larger amount later. This applies whether you were already receiving benefits or if your SSDI converted to retirement benefits. You’ll earn 8% retirement credits for each year you delay. Then your benefit will max out at age 70.
Suppose you’re receiving monthly disability payments of $2,000 per month and you turn 67, your full retirement age. You decide you can afford to go one year without benefits in exchange for larger checks for the rest of your life. You call Social Security and voluntarily suspend your benefit. When you reinstate your benefits one year later, you’d get $2,160 a month, plus any cost-of-living adjustment. You’d have the same option if you’re already taking retirement benefits.
Once you reach full retirement age, the rules about working get a lot more flexible. If your condition improves and you become able to work, you won’t face the stringent income limits that apply to SSDI benefits.
Social Security also won’t withhold a portion of your retirement benefits if you work past full retirement age.
The bottom line is that your Social Security benefit will switch from disability to retirement when you reach full retirement age. Chances are, this will be a non-event for you. Your check amount will stay the same, and you won’t be any better or worse off from it.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]