Social Security Disability & Retirement

by Cam Merritt, studioD

The federal disability insurance program operated by the Social Security Administration isn't like state- or employer-funded programs that provide temporary assistance for "short-term" disabilities. Social Security disability is only for those with a debilitating condition expected to last more than a year or until death. In other words, it's for people who are unable to work. As such, when you go on Social Security disability, you receive the same amount each month as you would if you had retired with full benefits. Because of this, the transition from Social Security disability to Social Security retirement doesn't involve any reduction in your benefits.

Social Security Benefit Amounts

In general, Social Security's disability insurance program pays recipients a monthly benefit equal to the full retirement benefit they had earned at the time they became disabled. Social Security calculates your retirement benefits based on your work history -- essentially, how long you have worked and how much money you have earned and paid Social Security taxes on. The amount derived from those calculations is called your "full monthly benefit." Many retirees get less than their full monthly benefit because they begin drawing Social Security early. You can start drawing retirement benefits as early as age 62, but doing so will reduce your monthly benefit as much as 30 percent. So a $1,800 monthly benefit, for example, would become $1,260. To get the full benefit, you must wait until your "full retirement age" to begin receiving Social Security. Full retirement age is set by law, and it ranges from 65 to 67, depending on the year in which you were born. When you go on disability, however, your monthly benefit is equal to the retirement benefit you would have received had you waited until your full retirement age -- in this example, $1,800. Note, however, that the younger the age at which you become disabled, the lower your full benefit may be, as it will be based on your work history to date.

Reaching 62

If you are receiving Social Security disability, it's because the government has determined that you are unable to work. When you reach 62, then, you don't face a decision about whether to "retire," because as far as the government is concerned, there's nothing for you to retire from. You will continue to receive your monthly disability benefit equal to the amount of your full retirement benefit.

Reaching Full Retirement Age

When you reach your full retirement age, Social Security converts your disability benefit into a retirement benefit. For all practical purposes, you shouldn't see any effect. The amount of your benefit will remain the same. You've reached full retirement age, so you get the full benefit. The change is primarily a bookkeeping issue for the Social Security Administration.

What Do You Have to Do?

According to Social Security, you don't have to do anything when you reach your full retirement age. The government converts your benefits automatically. It's not necessary to contact Social Security.

Working and Benefits

Social Security has programs in place to encourage people on disability to try going back to work. You start with a nine-month "trial work period," during which you will continue to receive your full disability benefit. A month only counts toward the trial period, however, if you earn more than a certain amount during that month. As of 2012, the threshold was $720. So if you earned $500 in January, $800 in February, $300 in March, $750 in April, $1,100 in May and $150 in June, you will have used up three months of your trial period. The trial period ends when you have had nine over-$720 months within a five-year span. At that point, you can continue working until you have logged 36 additional months with "substantial" earnings. As of 2012, Social Security set the "substantial" threshold at $1,010 a month. At that point, Social Security will re-evaluate your disability status. Regardless of how much you make, you must report every cent of your earnings every month while on disability. When your disability benefits convert to retirement benefits, however, there are no longer any restrictions on earnings. Unlike people who work while getting early retirement benefits, those who have reached full retirement age do not have their benefit reduced when they have other income.

Disability Fraud

Social Security disability is a lifeline for people in need. To keep it so, the Social Security Administration's inspector general's office pursues fraud investigations aggressively, both on its own and in conjunction with state disability programs. People who are able to work but who "manage" their earnings to stay under the threshold and continue receiving benefits are committing fraud. The inspector general receives fraud referrals from several sources, including tips from the public and reviews of records. Earnings that suddenly increasing after the transition from disability to retirement benefits could prompt an investigation. Penalties for Social Security fraud start with an obligation to repay improper benefits and can range to up to five years in prison and a $250,000 fine.

About the Author

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

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