Chris Stein, CFP®
Transitioning Social Security Disability Benefits to Retirement Benefits
The following multi-part question came in recently:
“I am on SS disability benefits now. Next year I reach my full retirement age of 66. It is my understanding that my disability benefits will automatically convert to a retirement benefit. Is this true, and will it be the same amount? Also, I do not have 35 years of work history due to my disability. Will that affect my retirement benefit? Lastly, once it converts to a retirement benefit will I have the ability to suspend my benefit to take advantage of delayed credits to age 70 like a non-disabled person could?
We do not cover a lot of Social Security Disability Insurance (SSDI) questions in this blog since the massive complexities of the SS disability system would probably warrant their very own blog, but this series of questions is common and pretty straightforward and we felt we could help our readers by answering it. I will take these in order:
Yes, your SSDI benefit will automatically convert to a Retirement Benefit at your FRA (Full Retirement Age). It should be in the same amount, but there have been reports from people that it can sometimes be slightly lower. Each person’s case will be different so I cannot say for those people why they saw the decrease, but the general rule is it stays the same. I suspect that folks who reported this reduction in the past did not realize that their Medicare premiums also start coming out of the SS checks about the same time they convert and that will cause the monthly net payment to be lower. But that is just a guess on my part.
Different Benefit Calculation
When you go on SSDI the calculation for benefit is different than a standard Retirement Benefit calculation. The fact that you did not have 35 years of earnings to go into the calculation does not hurt you. In fact they consider your SSDI payments as “Earnings” in such a way as to make your Retirement Benefit effectively equal to your SSDI payment. This is why the monthly amount stays the same when you reach FRA.
Once you reach FRA and the benefit converts to a Retirement Benefit you have the same rights as anyone else collecting a Retirement Benefit. Anyone, including you, has the right to suspend their Retirement Benefits after reaching their FRA. The reason to do this is to earn the 8% per year Delayed Retirement Credits, allowing you to turn your benefits back on at a later date (up to age 70) and at a higher amount than before. The automatic conversion does take away another popular strategy, but it does not take away the ability to suspend.
Since there are many misunderstandings about how SSDI relates to SS Retirement Benefits we thought this would be a good starter question to help people grasp more of how those two systems complement each other.
For more information on this topic, please use the play button below, and as always, we love getting questions so if you have one, don’t hesitate to contact us and we will try to tackle it!
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