If you're receiving Social Security disability benefits while you're still working, you may wonder what that will mean for your Social Security retirement benefits. Here's what you should know about how disability and retirement benefits work together once you reach retirement.
Understanding Social Security Disability Insurance
The first thing to keep in mind is there is a difference between Social Security disability insurance (SSDI) and other disability insurance. The SSDI program pays benefits to you or certain family members if you qualify, and have worked long enough and paid Social Security taxes.
If you are eligible for private disability income insurance, that doesn't necessarily mean you're also eligible for SSDI. Disability payments received through private insurance typically do not affect your Social Security retirement benefits.
With SSDI benefits, the amount of money you receive is calculated using two different dollar amounts: your average indexed monthly earnings, which averages your lifetime income, and your primary insurance amount, which is the amount of money you are entitled to receive as retirement benefits at your full retirement age (between ages 65 and 67, depending on the year you were born, according to the SSA).
SSDI & Your Retirement Benefits
The amount you receive in disability benefits is generally equal to the amount you are eligible to collect in retirement benefits at your full retirement age. If you receive SSDI benefits before reaching your full retirement age, your SSDI benefits will automatically convert to Social Security retirement benefits once your reach full retirement age, without a change in the amount. In effect, you will continue to receive the same amount of money before and after your full retirement age — and only the name of the benefit you are receiving will change.
Retirement Benefit Options
When your benefit changes from SSDI to retirement benefits, your dependents may file for benefits based on your work record with Social Security retirement benefits, which they may not do with SSDI benefits.
Also, upon reaching your full retirement age, you can choose to withdraw your Social Security retirement benefit. By doing so, you can delay taking your retirement benefit and accrue delayed retirement credits, which could increase your benefit each year you wait. You can then hold off on refiling for your benefits until as late as age 70. Both of these options help make it possible for you or your household to potentially increase your monthly benefit amount in the future.
The most common survivor benefit — the benefit for a surviving spouse — typically remains the same whether you're collecting SSDI or retirement benefits. If the widow or widower has reached their full retirement age, they will receive the same amount that the deceased spouse was collecting in monthly benefits, whether it was an SSDI or retirement benefit, according to the SSA.
However, if you leave behind a spouse that's still caring for a dependent child, whether you are receiving SSDI or retirement benefits can make a difference. The SSA calculates a family maximum benefit (FMB) that limits the amount your dependents can collect, according to the SSA. A separate FMB is calculated for SSDI recipients.
The FMB for SSDI beneficiaries is no less than the amount you are entitled to collect at full retirement age and no more than 150% of that amount. This means your family could be eligible for less survivor benefits based on your SSDI benefits than what they would be eligible for if you were collecting retirement benefits.
Understanding Social Security
The systems in place for Social Security disability and retirement benefits can be a little confusing. It's important to understand what to expect from your Social Security benefits so you can plan ahead for your own retirement and also potentially help protect your loved ones.