Clients often ask whether they can receive social security disability benefits (SSDI) and retirement benefits. The quick answer is no. Once you reach full retirement age – between ages 66 and 67, depending on the year you were born – the Social Security Administration (SSA) converts an individual’ SSDI benefits to regular retirement benefits. An exception applies for individuals who opt for early retirement, thought it comes with an important caveat, which we’ll discuss below.
However, whether you can receive retirement and SSDI benefits depends on what you mean by “retirement”. For SSDI purposes, retirement means benefits paid through the SSA. Yet Social Security retirement benefits are not always the only benefit people receive when they retire. Pensions or 401(k) plans through an employer also pay benefits at retirement. While many people generically refer to each of these as “retirement” benefits, for purposes of receiving both SSDI and retirement benefits, they are very different.
The longer answer, then, is that you cannot receive SSDI and retirement benefits from the SSA. You may, however, be able to receive SSDI and benefits through a pension or 401(k).
Pension and 401(k) benefits versus Social Security retirement benefits
Pension and 401(k) plans are benefit programs private and some government employers provide their employees. Pensions guarantee employees a defined benefit once they retire (the retirement age varies by plan). Under a 401(k) plan, employees have the option to contribute a defined portion of their monthly earnings to the plan, which their employer often matches. The benefit amount paid at retirement depends on several variables, including how the plan is structured, how much the individual wants to withdraw, and of course, the plan’s value.
Social Security retirement benefits are based on an individual’s lifetime earnings. When calculating the monthly benefit, the SSA considers the individual’s highest 35 years of earnings and her age at retirement. This means benefit amounts vary.
SSDI and retirement benefits
As we said earlier, you cannot receive both SSDI and Social Security retirement benefits. The purpose of SSDI benefits is to replace a portion of the recipient’s income while he is unable to work due to disability. Retirement benefits, on the other hand, are designed to provide an income stream once the recipient reaches retirement age, which again is between 66 and 67, depending on the year you were born.
Logically, the prohibition against receiving both types of benefits makes sense – your loss of income at retirement age isn’t due to disability, but rather the fact that you retired. When this happens, the SSDI benefit converts to retirement benefits. In essence, SSDI is retirement benefits for people who can no longer work, but have not reached retirement age.
An individual can, however, receive both SSDI benefits and benefits from their pension or 401(k) plan, though it is possible your SSDI benefits will be reduced by the amount of your pension. Generally speaking, whether distributions from your pension or 401(k) will reduce your monthly SSD benefit depends on whether you paid social security taxes on the wages that allowed you to earn the pension or 401(k). If you did, there will be no reduction. If you did not pay social security taxes on those wages, your monthly SSDI benefit will be reduced. But you will still be able to receive both.
Early retirement exception
The one exception to the prohibition against receiving SSDI and retirement benefits is for individuals who elect early retirement. Early retirement can be taken at 62, though it comes with a penalty – up to a 30% lifelong reduction in your monthly benefit amount, depending on how early you retire.
The early retirement exception not only allows you to receive both benefits, but eliminates the penalty. However, for the exception each of the following – in the stated order – must occur:
- Choose early retirement;
- Apply for SSD benefits after retiring, and;
- The SSA must find that your disability began before you chose early retirement.
If these criteria are met, the SSA will pay the difference between the full disability award and your early retirement benefit, meaning you are essentially receiving both (though the amount received cannot exceed the full disability benefit). The SSA will also pay you the difference retroactive for the months you were not working but not yet approved for SSD benefits. When you reach full retirement age, your monthly SSD benefits will convert to your full retirement benefit, without the early retirement penalty.
For example, let’s assume your medical condition makes it increasingly difficult to work. At age 62 you opt for early retirement and receive $1,000 in benefits. You then apply for disability benefits; a year later you are awarded $1,300 in SSD benefits and your disability onset date is set several months before you retired. Because the SSA found that your disability occurred before you opted for early retirement, it will pay you $1,000 in early retirement benefits plus $300 in SSD benefits, so your total monthly benefit amount equals the SSD award. The SSA will also retroactively pay you $300 for each month you were entitled to SSD benefits while waiting for your application to be approved.
In addition, when you reach full retirement age your SSD benefits will convert to retirement benefits, and the early retirement penalty will not apply.
If, however, you apply for SSD benefits after you take early retirement, or if your application is denied, the early retirement penalty continues to apply and you will receive a reduced retirement benefit for life.
If your medical condition makes it difficult for you to work, it may be tempting to opt for early retirement and then apply for disability benefits to help bridge the gap while you wait for your application to be approved. However, there is no guarantee your application will be approved, which means you could find yourself with a reduced retirement benefit for life.
An experienced social security disability attorney can help you decide whether taking early retirement is the right choice. Call the Good Law Group for a free case evaluation – call (847) 577-4476.