Wednesday, December 10, 2014

What Happens to Disability Benefits When You Retire?

Millions of Americans are disabled and one of the things they worry about is what will happen to their income when they reach retirement age.  The answer to that question depends on the source of their disability income.

Private Disability Insurance

If you have been covered by private disability insurance, most companies cease making payments to you when you either reach age 65 or your full retirement age ... which can be age 66 or 67.  These companies typically pay you an income in addition to what you have been receiving in Social Security Disability ... or instead of it, if you were not eligible for Social Security.  In those cases, your income could drop dramatically when you reach retirement age.  However, the majority of Americans do not have private disability insurance.  Instead, they rely solely on Social Security disability coverage.  In those cases, their income will remain the same or, in some cases, might even increase slightly after they retire.

Social Security Disability Insurance

The good news is that your Social Security disability payments remain the same when you reach retirement age ... even if your income during your working years was not enough to qualify you for that level of monthly income.  This protects people who became disabled years before they reached retirement age, so they had a shortened work history.

What if You are Entitled to Social Security Spousal Benefits

Disabled people who are married, or who were married to someone for at least 10 years, also have the option of receiving monthly payments based on their spouse's work history, rather than continuing to receive their disability payments, if the spousal benefit would be larger.  In this case, it would be wise for them to begin receiving the spousal benefits at their full retirement age, when those benefits would be maximized.

Which Benefit Would Be Best for You?

Let's say that you have been receiving $1100 a month in Social Security Disability payments and you have a spouse or former spouse who is receiving $2500 in Social Security retirement benefits.  If you are age 62, you would be entitled to no more than $900 a month in spousal benefits, which is less than your disability payments, so there is no reason why you would switch to the spousal benefits.  However, if you wait until your full retirement age, between ages 65 and 67 depending on when you were born, you would be able to receive 1/2 of the your spouse's benefit, or about $1250 ... which is more than your disability payment.  At this point, it would be worthwhile for you to switch from disability to spousal benefits.

As you can see, if you are on Social Security Disability and in your 60's, it is worthwhile to take the time to compare your disability payments to your spousal benefits ... and re-evaluate every year until you reach full retirement age.  You will need information from both Social Security statements in order to make this comparison.  You can find your personal information at: my Social Security website.  You can use the information they provide and their estimator to make an informed decision.

Sources for additional information:

http://www.ssa.gov/myaccount/

http://www.ssa.gov/disability/

If you are interested in learning more about retirement planning, use the tabs at the top of this page to find links to hundreds of additional articles.

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1 comment:

  1. Thanks for writing about this. It's an excellent topic and one many people question.

    ReplyDelete

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