Social Security Disability Insurance - dummies

Social Security Disability Insurance

By Jonathan Peterson

Copyright © 2018 by AARP. All rights reserved.

SSDI is one of the protections that goes to everyone who is eligible for Social Security benefits, regardless of income. When a worker becomes disabled, this protection also may go to certain dependent family members. About 8.9 million workers get SSDI, and about 2 million of their relatives — mostly kids — also get disability payments.

If a disabled breadwinner has earned Social Security coverage and qualifies for disability, benefits may go to dependents. These may include the following:

  • A spouse who is at least 62 years old or is caring for the disabled worker’s child who is younger than 16.
  • A disabled widow or widower who is at least 50 years old. (The disability must have begun no later than seven years after the breadwinner’s death.)
  • A child (including adopted children, stepchildren, and possibly grandchildren) who is unmarried and not yet 18 (or 19 if not yet graduated from high school), or an unmarried adult child who is 18 or older and became disabled before the age of 22.

The SSDI benefit amount depends on your earnings history with the SSA, but the average monthly payment to a disabled worker is under $1,200. In determining the monthly payment, the SSA does a calculation similar to figuring your retirement benefit. Get a rough idea of what your disability benefit may be. Just plug in your birth date, recent earnings, and when you expect to stop working.

If you’re approved for SSDI, you generally become eligible for health benefits through Medicare after two years.

To become eligible for disability benefits, you must meet certain requirements based on your earnings history. The SSA applies two separate tests to determine whether you qualify. These tests are based on what it calls credits (earnings you receive in the course of a calendar year). The dollar amount of a credit changes annually. (It was set at $1,300 for 2017.) You can get up to four credits in a year — and most full-time workers do. For example, in 2017, you get four credits by earning at least $5,200.

Here are two tests you have to pass to qualify for SSDI, based on your earnings history:

  • The recent-work test: This test (also known as disability insured status) establishes whether you’ve worked recently enough to qualify, based on your age. The youngest workers generally need one and a half years of work in the three years leading up to their disability. (Remember: You can get up to four credits per year, which most workers are able to do.) Workers who are approximately 24 to 31 years old need to have worked three out of the six years leading up to the onset of their disability to get the credits they need. Workers who are 31 and older generally need to have worked five out of the ten years before they became disabled.
  • The duration-of-work test: This test (also known as fully insured status) establishes whether you’ve worked long enough in covered employment to qualify for disability benefits. The requirements vary significantly according to your age, with people under 28 needing just one and a half years of work and someone who is 50 needing seven years of work.

If you’re an average wage-earning adult in decent health, you probably meet these requirements, but they do have pitfalls for some people. If you haven’t worked very much in recent years, you may fall short on the recent-work test. Or maybe you’ve worked plenty, but your employer failed to make the required Social Security payroll tax contributions in your name. That could leave you with an insufficient earnings history to qualify. If you were self-employed and didn’t pay your own Social Security payroll taxes, it could come back to haunt you if you suddenly need disability insurance.

This table shows that the number of work credits you need to qualify for SSDI varies according to age.

Work Credits Needed for Disability Benefits

Born After 1929, Became Disabled at Age … Number of Credits You Need
31–42 20
44 22
46 24
48 26
50 28
52 30
54 32
56 34
58 36
60 38
62 or older 40

Source: Social Security Administration

The next two tables show the rules for the SSA’s recent-work test, as well as work requirements to meet the duration-of-work test.

Work Needed to Pass the Recent-Work Test

If You Become Disabled … Then You Generally Need …
In or before the quarter in which you turn 24 One and a half years of work during the three-year period ending with the quarter in which your disability began.
In the quarter after you turn 24 but before the quarter in which you turn 31 Work during half the time for the period beginning with the quarter after you turned 21 and ending with the quarter you became disabled.

Example: If you become disabled in the quarter in which you turned 27, then you would need three years of work out of the six-year period ending with the quarter in which you became disabled.

In the quarter you turn 31 or later Work during five years out of the ten-year period ending with the quarter your disability began.

Source: Social Security Administration

Examples of Work Needed to Pass the Duration-of-Work Test

If You Become Disabled … Then You Generally Need …
Before age 28 1-1/2 years of work
At age 30 2 years of work
At age 34 3 years of work
At age 38 4 years of work
At age 42 5 years of work
At age 44 5-1/2 years of work
At age 46 6 years of work
At age 48 6-1/2 years of work
At age 50 7 years of work
At age 52 7-1/2 years of work
At age 54 8 years of work
At age 56 8-1/2 years of work
At age 58 9 years of work
At age 60 9-1/2 years of work

Source: Social Security Administration

The SSA may place a freeze on the earnings record of individuals who are entitled to disability benefits. This is to your advantage. It means that the period — potentially lasting years — in which a disability depressed or eliminated all your earnings isn’t added in when the SSA computes your lifetime earnings record. The freeze may have the effect of propping up your earnings record, which otherwise would be harmed by disability, and preserving the amount of benefits you qualify for.

If you’ve applied for disability, and you believe that your impairment has clearly reduced your earnings from what you earned before you had the disability, ask an SSA representative whether you qualify for a disability freeze. If so, you may end up with a higher benefit.

If you get multiple kinds of disability benefits, including SSDI, payment amounts are potentially affected. For example, if you get workers’ compensation and SSDI, and if the total benefits exceed 80 percent of your pre-disability earnings, your Social Security payment could be reduced. Importantly, SSDI payments based on your work record that go to dependents also are counted toward the 80 percent cap. You also could run into this restriction if you’re getting SSDI and a different public disability benefit that isn’t job related.

SSDI benefits also may be reduced if you’re receiving benefits from prior work for which you didn’t contribute Social Security taxes, including government employment.

SSDI benefits are not reduced if you also get Veterans Administration (VA) benefits or certain state and local government benefits, as long as those benefits come from a job in which you paid Social Security taxes. The SSA won’t reduce your SSDI payments if you’re also getting private disability insurance.

Here’s an example: Kimberly earns $40,000 as a dietitian in the county medical center. After she slips on the wet floor and suffers a serious head injury, she starts to receive $1,150 in monthly SSDI and another $2,000 in workers’ compensation. Her combined benefits of $3,150 are 94.5 percent of the $3,333 she was taking home each month before the accident. The SSA wants the combined payments not to exceed 80 percent of Kimberly’s former wages, which would mean $2,666. Therefore, the SSA reduces Kimberly’s disability payment to $666. Because she is also getting $2,000 in workers’ compensation, her benefits now equal 80 percent of her prior earnings.

Private disability insurance policies may reduce their payments if you receive SSDI. Many policies have a provision stipulating that they’ll reduce payments if you’re approved for SSDI. Some companies even offer you legal counsel to pursue your Social Security claim. If you receive such an offer, proceed with care. Make sure that whoever represents you is working in your best interest. You may choose to hire an attorney or other representative of your own choice.