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Retirement Planning > Social Security

Your client doesn’t "need" SSDI? Really?

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An award of Social Security Disability Insurance (SSDI) benefits provides income for a worker and the worker’s eligible dependents, “freezes” the worker’s earnings record and entitles the worker to Medicare.

It’s a myth that “if you can sell pencils on a street-corner” you cannot possibly qualify for SSDI. Yes, it’s usually easier and faster to qualify for short-term disability (STD) and long-term disability (LTD) insurance than for Social Security.

However, collecting from private insurance and the “entitlement” program workers buy into by paying FICA and/or SECA taxes is not mutually exclusive.

People earning up to $118,500 in 2015 are taxed on total income for Old Age, Survivors and Disability Insurance (OASDI). Earnings above that limit are not taxed for OASDI purposes.

A worker getting approved for SSDI in 2015 can receive a maximum initial benefit of $2,663. The worker’s “auxiliaries” can apply for and be entitled to 50 percent per beneficiary to a combined maximum of between 85 percent to 150 percent of the claimant’s monthly amount per family or for all entitled auxiliaries.

Even for many private insurance planning clients, getting that kind of steady income can be helpful.

For a look at some other basic SSDI facts, and some of the reasons any clients who become disabled should apply for SSDI benefits promptly, read on.

People taking notes

SSDI basics

  • Benefits can begin after five full months of total disability if it is expected that the condition, or conditions, the client has will last a year or result in the client’s death.
  • Benefits can be awarded more quickly, under the compassionate allowance criteria, if the client has a condition on the SSDI compassionate allowance condition list, such as ALS, mixed or early onset dementia, and many cancers.
  • Co-morbid or multiple medical conditions, medications and the medications’ combined side effects, and a need for regular medical treatment are all weighed and considered as are the client’s age, education and vocational background.
  • Social Security will consider the client’s application if the client’s need is “dire,” meaning that the loss of income and benefits due to disability will lead to homelessness or severely impact the client’s living conditions in other ways.
  • Applications for benefits have a greater likelihood of being approved as clients make it up the appeals levels. Most people are not approved at the initial application, but many of the applicants initially rejected either are not qualified at the time of application or have returned to work within the year.
  • Medicare will begin to cover a client who qualifies for SSDI after the client has been eligible for SSDI for two full years. The exception is for those suffering from end-stage renal failure. SSDI beneficiaries who are getting kidney dialysis get Medicare immediately.
  • The spouse of a client who qualifies for SSDI and eligible dependents can also receive SSDI benefits.
  • While insurers often point out that private disability insurance can cover an insured’s ability to return to the insured’s “own occupation,” the fact is that SSDI considers the claimant’s prior work, education and income. After age 49, the SSDI criteria for deciding whether a claimant can return to work changes. Claimants have an easier time qualifying for benefits, because there’s a lowered expectation that a claimant will be able to retrain and return to gainful employment.
  • SSDI benefits payments usually increase each year, thanks to Social Security’s cost of living adjustment (COLA) feature. STD and LTD do not offset for this increase in SSDI benefits.
  • The SSDI “Ticket to Work” program encourages beneficiaries to get the retraining they need to return to work. The program provides continued benefits, incentives and Medicare while claimants try to rehabilitate. If clients who are collecting SSDI try to return to work and cannot, and, normally, their SSDI benefits would be reduced, they can resume collecting full SSDI benefits.

Want more SSDI information? Here are resources from Cornell University’s Employment and Disability Institute.

Piggy bank in a vice grip

Not filing for SSDI can be costly

Some clients may resist filing and try to survive by using only private insurance and private savings. When clients who are disabled fail to pay FICA or SECA taxes, their earnings record erodes, lowering both SSDI and retirement benefits.

When clients collect LTD for 10 years but fail to apply for SSDI or pay payroll taxes, the benefits available at full-retirement age will be greatly reduced. The financial effects of this hit on retirement benefits can be catastrophic.

Clients are considered “insured” for SSDI purposes for five years after they stop paying into FICA or SECA. If clients blow the eligibility time-frame, it can be difficult to get SSDI. However, if clients have been on LTD for a number of years, it may be possible that their claims and medical records will support an award of what is known as a “remote date last-insured”. 

There is a possibility that any LTD benefits, worker’s comp benefits or STD benefits will be offset by the SSDI benefits a client receives or vice versa. Any offsets are usually a function of the way benefits were purchased or the laws governing the benefits. 

In the case of LTD, employers often choose to give covered employees a slightly higher monthly benefit in exchange for letting the insurer offset SSDI. In that situation, the group disability issuer will want the beneficiary to apply for Social Security benefits on a timely basis, to protect the beneficiary’s access benefits and, frankly, the issuer’s access to the SSDI offset. Insurers seek reimbursement of “overpayments” when beneficiaries receive a retroactive SSDI benefit.

When SSDI beneficiaries earn enough to pay income taxes, the SSDI benefits are taxable. But the benefits from getting access to an income stream usually outweigh concerns about tax obligations.

Higher wage-earners are unfairly shut out of getting SSDI benefits.

One problem with SSDI is that, unless claimants are participating in the Ticket to Work program or a similar program, if they return to work and earn $1,090 or more per month (or $1,820 or more if they are blind), they will lose their SSDI benefits. This means some people may lose SSDI benefits if they return to work and earn even a small fraction of what they earned before they became disabled.

See also: Disability Insurance Advocacy Picks Up

But, in spite of the recent publicity about SSDI program solvency, the SSDI funding stream is quite secure, as was demonstrated in Social Security Administration chief actuary reports released earlier this spring.

Make sure your clients who face limitations talk to qualified SSDI advisors, to see whether an SSDI application is worth filing. As you can see, delays in filing can cause serious hardship.


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