While I’ve talked about the importance of having disability insurance in the past, a lot of questions still arise regarding Social Security disability benefits. Everyone seems to have a story, or know someone who’s receiving Social Security disability, so there is always some skepticism as to whether or not outside coverage is needed. Think of it this way–if it is easy to qualify for Social Security disability benefits, why are there so many attorneys and law firms that specialize in Social Security disability claims and appeals?
Go ahead and do a quick web search for these types of attorneys. You’ll be amazed at what you find. Of course, many of these law offices look about as reputable as your local payday loan company, but it just goes to show you how people often try to claim Social Security disability and are subsequently denied, so they seek help from an attorney.
Disability coverage through Social Security is a legitimate benefit that you’re entitled to if you meet the criteria. The problem is that the criteria are very strict and it can be difficult to actually qualify for the benefit.
To be entitled to a disability benefit, a worker must:
- Be fully insured at the onset of disability.
- Have worked in Social Security-covered employment for at least five of the previous ten years (20 out of 40 quarters). This applies to disability that begins after age 31. If the disability begins before age 31, you must have worked under Social Security-covered employment for the greater of six quarters, or at least one-half of the quarters between age 21 and the age when disability began.
- Be under Social Security normal retirement age. After normal retirement age, disability benefits become retirement benefits.
- Have a physical or mental impairment that (1) disables the worker from the performance of any substantial work, and (2) is expected to either be terminal or last for at least 12 months.
The last piece is what’s most important. It states that you must be unable to perform ANY substantial work. This is where most people get snagged. It isn’t uncommon to become disabled in such a way that it prevents you from doing your exact line of work, but that isn’t enough. Did you work in construction and suffer a disability that has put you in a wheelchair? Sorry, there are still a lot of other types of jobs you can do, so chances are you’d be denied.
A disabled worker who qualifies for Social Security disability benefits is entitled to the full benefit payable until the earliest of the following:
- The disability ends: benefits are terminated in the second month after the end of disability.
- The worker dies: benefits are terminated in the month prior to the worker’s death (e.g., worker dies in July; no June benefit is paid).
- The worker attains normal retirement age.
Spouse’s benefit. Disability benefits for spouses are calculated in the same way as retirement spousal benefits: 50% of the worker’s benefit, reduced if the spouse is under normal retirement age. Benefits are subject to a family maximum.
Child’s benefit. A child who is under age 18, or under 19 if still in high school, is eligible for a benefit amounting to 50% of the disabled worker’s benefit, again subject to the family maximum.
But how much money would you receive even if you do qualify? Well, the Social Security Administration has a few nice calculators that can help you see how pitiful the benefit would be if you were really unable to work. I went ahead and did the first option of using the quick calculator just to see what my benefits would be, and it wasn’t pretty. My disability benefit would be around 38% of my current salary. And this number is high, because my pay has only been at this relative level for just a few years. Prior to that it was significantly lower. So, in using the detailed estimator, I found out my benefit would be about 23% of my salary.
Ouch! Could you live on a third of your salary if you were to become disabled and unable to work? Probably not, especially if you now have higher health care costs that stem from the disability. The Social Security Disability program is a nice safety net of last resort, but count on it saving the day if something happens and you become disabled. You’ll first have to struggle with meeting the eligibility requirements and if you do qualify, then have to deal with a very small payment.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.