Applying for Disability benefits has a reputation as a time-consuming and inefficient process. Consequently, many people entering their 60s who could potentially qualify for disability benefits may opt to just elect for Social Security a couple of years early to avoid the hassle. However, this strategy has the potential to cost you a lot of money in the long run. Whether opting for disability would be the more remunerative strategy will depend on your age. A financial advisor could help you weigh the best options for your retirement goals.
Calculating Your Social Security Benefit Amount
The formula for calculating your Social Security benefits and your disability benefits is exactly the same right up until the very end. We’ll get into how it diverges in the next section, but for now, we’ll focus on the shared process.
The first step is calculating your average indexed monthly earnings (AIME). The Social Security Administration (SSA) will consider your 35 highest-earning years. For each of those years, it will index your income for inflation and include it up to the taxable maximum (the point at which you stop paying Social Security taxes). For the tax year 2023, this point is $160,200(up from $147,000 in 2022). For the tax year 2024, this has been increased to $168,600.
Next, the SSA will add up these totals and divide them to get your AIME. If you have more than 35 earning years, your lowest years will be excluded. If you have fewer than 35 earning years, the SSA will include a $0 in the calculation for every year you’re short.
The last step is to calculate your primary insurance amount (PIA) from your AIME. To calculate your PIA, the SSA will take a percentage of three different chunks of your AIME. The exact amount of these portions will differ slightly depending on the year you become disabled or turn 62.
When Does Disability Pay More Than Social Security?
Your PIA is the amount you’d receive if you were to qualify for disability benefits. It’s not that simple with Social Security benefits, however. While you’re technically eligible to begin taking Social Security benefits at age 62, you won’t receive your PIA until yourfull retirement age (FRA), which will fall somewhere between 66 and 67. At 62, your benefit amount would be only 70% of your PIA, increasing gradually until you reach your FRA.
Full Retirement Age
Year of Birth
FRA
1943-1954
66
1955
66 and 2 months
1956
66 and 4 months
1957
66 and 6 months
1958
66 and 8 months
1959
66 and 10 months
1960 and later
67
This means that between 62 and your FRA, your disability benefit would be higher. And there’s an additional benefit to taking disability: By electing for disability instead of Social Security, you allow your Social Security benefit to continue growing.
This disparity is even greater if you happen to become disabled after you turn, say, 63. The reason here is that your Social Security benefits will be determined by your PIA for the year you turn 62, while your disability benefits will be calculated with your PIA for the next year. Provided your AIME is the same or higher, then your PIA for the later year will be higher.
When Does Social Security Pay More Than Disability?
The reverse of the above situation is true if you are between your FRA and age 70. After you reach your FRA, your Social Security benefit amount increases by 0.8% for every month you hold off on claiming your benefits. This continues until you reach 70, at which point your benefit reaches its maximum. In this situation, your monthly Social Security benefit would be larger than your monthly disability benefit.
SSI vs. SSDI: Which Pays More?
There is also a comparison of payments from the different types of disability programs that the Social Security Administration manages. These programs are for direct disability benefits (SSDI) and supplemental income benefits (SSI). The SSDI payments are for those who are disabled and need income assistance. The SSI benefits are paid out to low-income, low-asset adults and disabled children.
If you’re comparing these two types of Social Security benefits, then you should know that typically the SSDI benefits pay more. In fact, disability in this scenario is, on average, more than double the benefits you would receive from SSI benefits. However, every individual situation may have varying results.
Bottom Line
It’s easy to get lost in all the different acronyms and calculations that come along with Social Security benefits. However, if you’re wondering if disability would pay more, just ask yourself where you are relative to your full retirement age. If you’re under it, disability will be higher. If you’re above it, Social Security will be higher. Just like with any other Social Security issue, the way you can optimize your experience is by thoroughly understanding all of your options.
A financial advisorcan help you account for the various sources of retirement income, including Social Security benefits. Finding a financial advisor doesn’t have to be hard.SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
If you’re applying for Social Security disability benefits, you’ll need to fill out form SSA-827. This provides your consent for the SSA and Disability Determination Services (DDS) to view your medical records.
Dealing with a disability, either temporary or permanent, is hard enough without considering the financial impact. Having an emergency fund in place for unpredictable things like this can be a huge relief.
SSDI pays more compared to SSI for most people. However, both programs can provide benefits for necessary needs. If you need help from SSI or SSDI (or both), contact a Social Security Disability lawyer.
If you're comparing these two types of Social Security benefits, then you should know that typically the SSDI benefits pay more. In fact, disability in this scenario is, on average, more than double the benefits you would receive from SSI benefits. However, every individual situation may have varying results.
Social Security Disability Insurance (SSDI) – The maximum payment is $3,822 a month (up from $3,627 in 2023). The maximum family benefit for SSDI is about 85% to 150% of the disabled worker's benefit. The maximum payment at full retirement age is $3,822 monthly.
If someone is over the age of 62 but not quite at retirement age, it might make sense for them to take early retirement. But, if their health is poor, applying for disability often makes more sense, as they are likely able to collect a larger monthly check on disability than what they would on retirement.
When your disability check isn't enough to live on, you may have additional options at your disposal. For example, you may qualify for extra help in specific areas such as health care costs, food, and housing. Different federal, state, and local programs may be available.
Social Security disability benefits automatically change to retirement benefits when disability beneficiaries become full retirement age. The law does not allow a person to receive both retirement and disability benefits on one earnings record at the same time.
The 100 percent disability rating is often awarded to veterans with two or more limbs that have been amputated or paralyzed or for veterans with active service-related diseases such as cancer, severe cardiac conditions, or psychiatric conditions such as PTSD, bipolar, depression, or schizophrenia.
A 90% disability rating sounds good. In 2024, a 90% rating will get a veteran with no dependents $2,241.91/month in veterans disability benefits and access to medical care. However, the difference in benefits at a 90% disability rating and benefits at a 100% disability rating are significant.
How Far Back Will SSDI Cover? Minus the five-month waiting period, you should receive back payments for any delays. The maximum SSDI will provide in back payments is 12 months. Your disability would have to start 12 months before you applied to receive the maximum in SSDI benefits.
Your period of disability ends on the last day of the month before the month in which you become 65 years old or, if earlier, the last day of the second month following the month in which your disability ended. (1) The month before the month in which you attain full retirement age as defined in § 404.409.
Some persons with disabilities die up to 20 years earlier than those without disabilities. Persons with disabilities have twice the risk of developing conditions such as depression, asthma, diabetes, stroke, obesity or poor oral health.
If you are in the SSDI program when you turn 62, you do not need to be concerned about removal from the program due to age. This is because the SSA assumes that if you had the capacity to perform your job, you would have worked until your full retirement age (FRA).
In 2024, the maximum Social Security disability benefit for a disabled worker receiving Social Security Disability Insurance (SSDI) is $3,822 per month, according to the Social Security Administration (SSA). That figure is expected to rise in 2025 due to a cost of living adjustment (COLA).
Living and surviving on only SSDI is possible. However, making ends meet with disability benefits alone can be a challenge. It's important to know how to make the most of your benefits and consider other income or benefit sources. Budgeting and minimizing your monthly costs can make it easier to live on SSDI alone.
The PIA for someone who becomes eligible for SSDI benefits in 2024 is the sum (total) of the following: 90% of the first $1,174 of average indexed monthly earnings. 32% of the average indexed monthly earnings over $1,174 through $7,078, and. 15% of the average indexed monthly earnings over $7,078.
The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.
The general rule is that Social Security benefits replace about 40% of pre-retirement income. With $30,000 in annual income, that means you could receive an estimated $12,000 per year in Social Security payments, without adjusting for inflation.
Permanent disability generally refers to a disabling condition that will last the rest of your life. If you have a permanent disability, you may be entitled to ongoing workers' compensation benefits based on your level of impairment and/or based on the impact of the disability on your earning power.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
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