The Social Security Disability program is a form of early retirement benefits. You can't receive both SSDI and retirement benefits at the same time (there is only one small exception to this rule, which this blog discusses at the end).
Determining the best time as when to retire is often the most critical step to getting the most out of retirement benefits. The decision becomes more challenging if the individual is dealing with a medical condition that interferes with their ability to work.
The good news is, if you're eligible for more than one kind of benefit, then Social Security Administration would pay whichever is higher. For most people, if they've worked long enough (35 years of substantial work) and paid enough social security FICA taxes on their earnings, they're covered automatically by retirement benefits and social security disability benefits.
Retirement Benefits or SSDI?
Workers planning for their retirement should be aware that retirement benefits depend on age at retirement.
Early Retirement Reduces Benefits:
Retirement benefits could be reduced if a person decides to claim them before the due time. Take, for instance, if a worker decided to claim their retirement benefits at age 62 (before full retirement age, 65 to 67), then they would not be eligible to receive 'full retirement benefits'. However, claiming benefits before full retirement is not prohibited even though it could result in as much as a 30 percent reduction in the total amount of receivable benefits.
The amount of reduction at each age is determined by a complicated formula by the SSA. For each month of early retirement, the benefits are reduced 5/9 of one percent for each month before full retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. For instance, if a person decides to retire at 60 (they are retiring 60 months earlier than full retirement age i.e., 67), then the benefit is reduced by 30 percent. This is calculated by deducting first 36 months time (5/9) of 1 percent plus 24 month's time (5/12) of 1 percent.
Exceptions to Early Retirement Reducing Benefits
The only exception to your benefits being reduced at early retirement is when you decide to claim it through the SSDI, which is possible at age 62, before being approved for disability benefits.
Disability before start of early retirement age: If a claimant decides to draw less than a full retirement benefit for a period of time, and then gets approved for disability benefits due to an impairment or condition, the SSA makes up the difference between early retirement amount and the full disability amount for those months the individual was disabled but receiving early retirement benefits (retroactively).
Take the case of this example. George started to collect early retirement benefits at age 60, and then later applied for social security for a condition that happened before and got approved for disability benefits. If Social Security agreed that your disability started before you started to collect early retirement, then you would be eligible for the disability payment gap. The social security would pay you the difference between your disability payment (which is equal to your full retirement payment) and your early retirement payment for those months that you received early retirement payments. (Note that at age 60, this difference between your early retirement payments and full retirement benefits is 30% of total amount at full retirement age – Hence, the SSA would make it up for you by paying it in a bulk check).
This holds true to disability that started before your early retirement benefits started.
Disability after start of early retirement benefits:
The exception only applies to the above case. However, if you got a disability before you started your early retirement benefits, then social security administration will not pay you the difference between your disability payment and early retirement payment. You would be paid less than full retirement age for the rest of your life. Similarly, if you are denied disability benefits by social security, then you would continue to receive early retirement benefits at the deducted (early retirement rate) for the rest of your life.
Strategies to Consider When to Take Early Retirement
Almost 73 million Americans receive disability benefits each year. With 86.8% people aged between age 62 to 67. Many of these adult disability claimants take early retirement option and also apply for the social security benefits in hopes that early retirement payments fill the gap until the disability payments start. However, it is important to note that even if you became disabled before choosing the early retirement option, there is no guarantee that you'll be granted disability benefits. In this case, you'd be stuck collecting reduced retirement benefits for the rest of your life. We recommend you only go for this option if you are severely disabled and have maximum chances of getting your SSDI approved even if you chose early retirement benefits.
If you're thinking to choose this course of action, it would be best if you seek professional help from an expert disability attorney who knows the way around both early retirement benefits and SSDI's requirements.