Social Security Disability and Retirement Benefits – What’s the Difference?

Answers to Questions about Disability and Retirement Benefits

I know from my experience in helping people with their Social Security disability claims both here at Freedom Disability, and in past years at the Social Security Administration (SSA), that people get confused about Social Security disability benefits and Social Security retirement benefits.  In fact, we get a lot of questions on our Web site such as, “I’m retired. Can I get disability benefits, too?” Or, “Will my disability benefit increase when I reach retirement age?”  Let me explain:

Retirement Benefits are Paid Based on Age

Social Security retirement benefits are for workers who paid into Social Security through payroll taxes, commonly known as FICA (Federal Insurance Contributions Act) taxes, throughout their working life. If you pay into Social Security long enough this makes you fully insured to receive retirement benefits.  

So when you reach full retirement age, which depends on your year of birth, and you’ve stopped working, or are working less, you can start taking your maximum monthly retirement benefit.

You can also retire before you reach full retirement age. This is called “early retirement” and you can choose to do this as young as age 62.

If you do take an early-retirement benefit, your cash amount will be permanently reduced by a percentage that is figured out from the number of months you take benefits before your full retirement age. This is called the “reduction factor.”

Retirement benefits are paid to you from the Old-Age and Survivors Insurance (OASI) trust fund. There is nothing you need to prove to get your retirement benefit except your age and your fully insured status.

Also, Medicare health insurance coverage kicks in once you reach the current eligibility age of 65.

Disability Benefits are Paid Based on a Medical Condition

Social Security disability benefits are for workers 18 years of age and older who can no longer work at all because of a qualifying medical condition that meets SSA’s strict definition of disability.

To be eligible for disability benefits, you must have paid into Social Security through payroll taxes, and you must have a recent-enough work history for your age. Generally, for someone 31 years of age or older that would be five years of work within the last 10 years prior to the onset of disability.

However, to qualify, you have to prove to SSA that your medical condition is severe enough to prevent you from working at any job for a year or more, or could result in death.

If you meet SSA’s disability eligibility requirements and are approved, you will be paid from the Disability Insurance (DI) trust fund.  

After a 24-month waiting period, you can get Medicare no matter your age.

Disability Benefits are Usually Equal to Full Retirement Benefits

In most cases, disability benefits are paid as if you are at full retirement age, no matter how old you are. This is because your benefit amount is based on how much you paid into Social Security while you worked.

If you are on disability and you reach full retirement age, your disability benefit switches to your retirement benefit and is paid to you from the OASI trust fund.  This is automatically done for you by SSA. You won’t even notice the change. The only difference is that your benefit is paid to you from a different pile of money – the OASI fund.

You Can’t Get Disability Benefits after Full Retirement Age

If you reach full retirement age, and then become disabled, you cannot get disability benefits, too. This is because, technically, you are already being paid benefits based on your work record.  

However, what if you became disabled months before taking your full retirement benefits and never applied for disability benefits?

 In a situation like this, you could be eligible for back disability pay. But there’s a catch. When applying for Social Security disability you must apply within 17 months from the date you became disabled in order to get your full back pay. If you miss that window of time, it’s too late to get paid full benefits from the disability trust fund for the months you were disabled.  Also SSA won’t accept a new disability claim for anyone who is six months away from their full retirement age.

If you take early retirement, and then become disabled, you can apply to SSA for disability benefits up to six months before full retirement age. The advantage here is that, if you’re approved, you could get Medicare sooner than age 65. And you could get a bump up in your cash amount.

But, keep in mind that it can take one to three years to get a decision on your disability claim. And, if you are approved, your disability benefit will not necessarily be set at the full-retirement amount. It will be adjusted by how many months of benefits you already received in early retirement.  This is called the “reduction factor.”

When it Can be a Good Idea to Switch from Social Security Disability to Early Retirement Benefits

There is an instance where you could actually make out better if you switch from Social Security disability to early retirement benefits. This is if you are also getting a Workers Compensation disability benefit for a work-related injury. That’s because early retirement benefits aren’t reduced by Workers Comp, unlike Social Security Disability benefits which are reduced by Workers Comp.  

SSA usually offsets, or reduces, your Social Security disability benefit by a certain percentage calculated from your average current earnings (ACE) because you are getting an additional disability benefit (Workers Comp).  Your retirement benefit is not affected by Workers Comp. It will not be reduced by the Workers Comp disability offset amount. So, once you reach the age of 62, your early retirement benefits could very well be more than what you’re getting for Social Security disability benefits. If you switched, you could get more, in addition to your Workers Comp benefit.

It would be best to have SSA figure out the math for you. But if it turns out in your favor to take early retirement, then it’s an easy matter to have SSA change you from disability to retirement status.  Just make sure that SSA keeps you technically disabled so that you can stay on Medicare. This should not be a problem since SSA considers you disabled. You can handle all of this through your local SSA office either in person or by phone appointment.

You Can Take Early Retirement Benefits While Waiting for SSA to Decide Your Disability Claim

As already mentioned, the wait for a decision on your disability claim can take as long as three years.

What if you applied to SSA for disability benefits at age 60 and are still waiting at age 62? You know you need the money. You do have an option. You can take early-retirement benefits before SSA decides your case. The ready cash can help you get through the wait. But, there’s a gamble. At stake could be how much you’ll get in disability benefits if you’re approved.  Here’s why:

• If SSA decides that the date you’re entitled to disability cash benefits is before you took early retirement benefits, you will get your full retirement amount as a disability benefit. You’ll get more ongoing benefits.
• If SSA decides the date you’re entitled to disability cash benefits is after you took early retirement benefits, your disability benefit will be permanently reduced by how many months you already received benefits – the reduction factor.

You also get paid for the time it took to approve your claim from the date SSA determines the onset of your disability. This is your retroactive lump sum payment and represents the number of months you are owed benefits. However, the amount you get will also be adjusted by how many months you received early retirement benefits.

It’s true that you may be gambling the cash amount of your disability benefit if you take early retirement before a decision is made. But there’s also another consideration. You may not get approved.  So, ultimately, you have to do what works best for you and your family.

Key Facts to Know about Disability Benefits

Here’s a recap of some of the most basic things to know about Social Security disability benefits:

• You cannot get disability benefits after you reach full retirement age.
• Your disability benefit is usually the amount of your full retirement benefit.
• Your disability benefit is calculated from your work record.
• Your disability benefit will not increase, even if your medical condition worsens.
• You are entitled to Medicare after a 24-month waiting period from when you receive your monthly disability benefits.

Get Help from the Experts

I hope I’ve helped clear up some of the confusion concerning disability and retirement benefits.  There’s no doubt that these are complicated issues. 

I suggest that, if you have questions concerning your retirement benefits, the best place to go for answers is your local Social Security office.

However, if you have a medical condition that is interfering with your ability to work, and retirement is still a ways off, please contact Freedom Disability.  The Social Security disability application process is difficult without the expert help of a trained Freedom Disability advocate to guide you through it. We’re ready to help.

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