Most of the questions I receive about Social Security claiming strategies pertain to retirement and survivor benefits. But increasingly, readers have been soliciting my advice about Social Security rules regarding disability benefits.
It is not surprising that there is growing interest in the topic given the fact that more than 10.5 million workers and their families currently receive Social Security disability benefits. But a series of rule changes over the past few years makes it particularly difficult to switch strategies once someone begins claiming disability benefits.
One question came from a widow who had hoped to switch from her own disability benefits to survivor benefits at 66 and then switch back to her maximum retirement benefits at 70. Another question came from a man who wondered what would happen to his wife's spousal benefits if he suspended his disability benefits at 66 to earn delayed retirement credits.
In both cases, attempting to halt suspend benefits could have unintended — and disastrous — consequences.
Social Security pays disability benefits to people who can't work because they have a medical condition that's expected to last at least one year or result in death. Certain family members of disabled workers can also receive money from Social Security.
In general, to get disability benefits, you must meet two different earnings tests: A recent work test, based on your age at the time you became disabled, and a duration of work test to show that you worked long enough under Social Security. For most adults, it means working at least 10 years in covered employment to qualify for Social Security benefits and to work at least five of the 10 years before becoming disabled to be eligible for disability benefits.
Once someone has been receiving disability benefits for two years, they become eligible for Medicare, regardless of their age. Program details are described in this Social Security Administration publication.
When someone who is receiving Social Security disability benefits reaches their full retirement age, their benefits automatically convert to retirement benefits, but the amount remains the same. This is essentially an accounting ploy. Benefits that originally were paid out of the Social Security disability trust fund would now be paid out of the Old Age and Survivor trust fund beginning at full retirement age, which is currently 66 for anyone born from 1943 through 1954. Full retirement age will gradually increase to 67 for anyone born in 1960 or later.
Until a few years ago, it was possible for someone who was receiving Social Security disability benefits on their own earnings record to withdraw their application for benefits before they were automatically converted to retirement benefits at full retirement age. At that point, they could collect auxiliary benefits as a spouse (or ex-spouse) or surviving spouse (or surviving ex-spouse) while their own retirement benefits would continue to grow by 8% per year up until age 70. Then, they could switch to their own maximum retirement benefits at age 70.
But that all changed in December 2014. The Social Security Administration clarified its claiming rules so that a request to withdraw benefits to prevent an automatic conversion to retirement benefits would be treated as a request to withdraw all benefits — including all disability benefits. That would require an individual to repay all of the disability benefits they had received over the years — an expensive and unattractive option.
Unfortunately, the widow who turned 66 in 2016 missed out on the ability to switch from disability to survivor benefits and back to her maximum retirement benefits at 70 by two years. In her case, because her widow's benefit was larger than her disability benefit, she could step up to her full survivor benefits at 66, allowing her to collect 100% of what her late husband was receiving or was entitled to receive at the time of his death.
But the only way for her to earn delayed retirement credits worth 8% per year for every year she postponed her benefits beyond full retirement age up to age 70 would be to suspend her benefits at 66. And because of a separate set of rule changes authorized by the Bipartisan Budget Act of 2015, she could not collect any benefits during the suspension. So, in her case, suspending her benefits at 66 would not be a viable option.
That same rule changes regarding suspending benefits prohibits anyone else from collecting benefits on a worker's record during the suspension. So, the other reader who wanted to suspend his benefits at 66 could earn delayed retirement credits up to age 70 per his intention. But during the suspension, his benefits would stop and so would his wife's spousal benefits.
(Questions about Social Security? Find the answers in my new ebook.)
Mary Beth Franklin is a certified financial planner.