Sorry for the delay in answering emailed questions. I had several questions about the same issue so I will address the most common themes.
Social Security Benefits and Social Security Disability for good reason confuses a lot of people. Debra and I have had a huge learning curve once I left work and went on disability. I had email comments such as, “you can receive social security, the Alzheimer’s website says so“, “you can get disability insurance and social security at the same time”, and “at least when you turn 65 you will be able to start getting social security to supplement the disability”. Also I had one individual who assumed that disability income was not taxable.
Unfortunately, all these premises are wrong. I will try to explain the events as we know them in our case. There are a lot acronyms used below, it is easy to confuse them.
First, the Alzheimer’s website explains that there is a “Compassionate Allowance Initiative” that is supposed to expedite the application process to receive SSDI (Social Security Disability). An important note here, this is NOT Social Security Benefits you receive when you reach retirement age, this is Disability.
I am still eligible for Social Security Benefits when I turn 65. The amount I will receive was “locked” when I left work on disability since I was no longer contributing to FICA (Federal Insurance Contributions Act). Disability income will not reduce the eventual Social Security amount.
What we were told by the Social Security Administration and what you can be read on-line varies greatly. It can be confusing during a time of great stress with an Alzheimer’s diagnosis.
We were told by both private legal counsel and the SSA to utilize an organization called the Social Security Advocates For The Disabled (SSAD). They are independent of the SSA, and are not affiliated with any government entity. They worked as our advocate. They filled in forms and took care of our needs as they came up. Instead of doing this work ourselves we hired SSAD. Their fee is 25% of the recovered disability amount owed or $6,000, which ever is lower.
That meant when I applied for SSDI, and it was approved, it would be retroactive to my initial disability date. Let’s say the disability date was in May of 2015 and SSDI was approved in October of 2015, I would get SSDI back to May of 2015 in a lump sum, minus the 25% for SSAD. Utilizing SSAD is supposed to prevent mistakes that could cause your application to be denied, or could cause a back up for approval. The application process is extensive.
Your Social Security Statement will give you the information you need about receiving disability. For example, Debra was a stay-at-home mother for many years and she would not be able to receive disability because she did not contribute to the system.
I hope that is clear, it is not an easy concept, it is much more difficult than it should be. If you need further clarification, send me a note.
You can’t get SSDI and SS at the same time. SSDI is intended for individuals who are disabled before they are at retirement age. My SSDI will convert to SS when I reach 65. You cannot apply for SSDI if you already receiving SS benefits.
Everyone regardless of their age should look at their SS benefit statement. You can setup up a SS account online at SSA.gov if don’t want to wait for the annual statement. People mistakenly depend on SS for their soul source of retirement funds. Your SS benefits are dependent of what you have paid in over your employment history. My benefit is a little over $2,000 a month for SSDI and will be approximately the same when it converts to SS when I turn 65. What you receive at retirement (65) is NOT a percentage of your last reported annual income. Not everyone is eligible for SS benefits at 65, this is dependent on your age. My retirement age is 65, Debra’s is 66.5. Some people can opt for early retirement at 62, again it is driven by your age. Your SS statement breaks it down for you. The other fallacy is that you can pay in as much as you want through payroll deduction. Social Security (FICA) is withheld at a specified rate. If your income hit’s $118,500 annually, no more FICA deductions are withheld for that year. SS is not a retirement plan.
Let’s switch now to Long Term Disability Insurance (LTDI). Not everyone has LTDI. In 2013, 69% of workers in the private sector did not have short term or long term disability. It is a mistake to assume that your employer automatically has a disability policy for it’s employees. I will give you an example that will scare you. Let’s say a 50 year old single individual is employed and is earning $48,000 a year. He is disabled and can no longer work. His monthly gross income is $4000 a month before he is disabled. Making some assumptions we can estimate that his monthly disability income will be no more than $1700 a month. Or about 42% of his take home pay before disability. Also we need to remember that once you are on disability, your employment ceases and you will need to pay for health insurance. If you opt for COBRA, will be paying 100% of the premium. I will talk about health insurance and COBRA in the next blog.
There is another potential issue that we ran into with our LTDI. After we were approved, we found out there was a clause in the policy that requires you to file for SSDI. If the policy is employer paid insurance like mine, the employer is not required to give a copy of the actual policy, only a “brief policy description”. This doesn’t sound like a big deal until you realize that once the SSDI is approved, the Insurance company can then deduct that amount from your monthly long term disability insurance benefit amount. Please check on your Long Term Disability Insurance Policy. The policy may or may not include short term disability insurance which would cover you in the event that you were off work for several weeks for a medical reason. Short term disability can, like in my case, be converted to long term disability.
The last clarification I will make is about taxable income. Just because you are disabled or retired, doesn’t mean you stop paying taxes. Disability income in the eyes of the IRS is still income.
I will end with the disclaimer that I am not a tax expert or a financial planner. What is in today’s blog is my opinion and the experiences Debra and I had with the process.