Will My Social Security Disability Change When I Turn 66?

The transition from Social Security Disability Payments to Social Security retirement payments can be scary for many SSDI recipients.

Many worry that they will lose income right when they need it most, others are concerned about the paperwork they may need to fill out to complete the transition while still others are unsure of when their SSDI payments will switch over to regular SS payments.

Following are some detailed answers to commonly asked questions along these lines.

Your SSDI benefits will automatically change when you reach full retirement age. However, “full retirement age” varies depending on the year in which you were born.

Those born in 1956 will reach full retirement age at 66 years, 4 months
Those born in 1957 will reach full retirement age at 66 years, 6 months
Those born in 1958 will reach full retirement age at 66 years, 8 months
Those born in 1959 will reach full retirement age at 66 years, 10 months
Anyone born after 1960 will reach full retirement age at 67 years

If you happen to have been born on January 1 of any given year, your full retirement age would be the year before you were born. For instance, an individual who was born on January 1, 1960, would be treated as a person who was born in 1959 and would be at full retirement age at 66 years, 10 months, rather than at 67 years.

You cannot receive SS disability payments and SS retirement benefits at the same time. Once you start receiving SS retirement benefits, your disability payments will automatically end. There is only one expectation to this rule, and that is for those who became disabled and applied for SSDI but then signed up for early SS retirement benefits before their SSDI application is approved. In such an instance, a person will receive SSDI payments along with retirement payments until their full SSDI payment allotment is completed. As an added benefit, a person in this position is entitled to full retirement benefits even though he or she filed for early benefits.

What do I Need to do to Switch from SSDI to Retirement Benefits?

You don’t need to do anything. Social Security will automatically switch your payments from disability payments to retirement payments.

Will My Income Go Up or Down When I Start Receiving SS Benefits?

Many people worry that they will lose income when they switch from SSDI to SS retirement benefits, as Social Security bases monthly benefit payments on 35 years of earnings. However, this is not the case for recipients of Social Security Disability payments who have worked fewer than 35 years in their lifetime, as Social Security uses a special formula to calculate average monthly earnings for individuals in this category.

If you are on SSDI payments, Social Security will calculate the number of years you have worked since you were 21 years old and then subtract one-fifth (or 20%) of your total working years or five years from the total, depending on which sum is less. The final sum is the number of years that will be used to calculate both your SSDI and SS payments. Following are two examples of ways in which this formula is used to calculate payments:

John started working when he was 21 years old. He became disabled when he was 41 years old, which means he worked for 20 years. Social Security will subtract 20% of John’s total working years, which comes to four years. John’s SS disability and retirement payments would then be based on fifteen years of earnings.

Trisha, on the other hand, started working when she was 21 years old and became disabled when she was 51 years old. She worked thirty years, so Social Security will subtract 20% from 30, which comes to 6 years. However, the maximum number of years that can be subtracted from one’s working years is five, so Social Security will base Trisha’s payments on 25 years of work history.

In both of the above examples, Trisha and John would notice no change in the amount of money they receive each month. This holds true for almost all SSDI recipients; however, there are some instances in which a person may more money when on SS retirement benefits than they did when on SSDI.

Social Security Disability Insurance automatically cuts money from payments when a person on SSDI has received a settlement or won compensation as a result of a lawsuit. This cut does not apply to a person who is on SS retirement benefits. If you have your lump sum payment deferred until after you reach full retirement age, or opt to have the money paid as an annuity rather than immediately, you will earn more money from your settlement even though you have to wait longer to receive it than you would have otherwise. Here is an example to illustrate the point:

Tony is 60 years old, and he is on SSDI payments due to a workplace injury that makes it impossible for him to hold down a job. He wins a settlement from his former employer, which provides him $500,000 in compensation. Once medical costs and legal costs are deducted from this bill, he has $350,000 left. Social Security Disability Insurance would calculate the amount of money he receives each month from the time he received the settlement until he reaches retirement age nearly eight years later. This sum comes to $3,645, which would be subtracted from his SSDI payments each month in most states (in other states, the money is subtracted from the settlement or lawsuit money rather than the SSDI payments).

If Tony does not need the money right away, he could opt to have it deferred until he reaches full retirement age, at which point he could keep all the settlement money without a reduction in his monthly retirement payments. Alternatively, if he needs some of the money right away, he could opt for annuity payments paid over a ten or twenty-year period. In such an instance, SSDI would only calculate the extra income he would receive from now until he reaches full retirement age. Legal and medical expenses from the next eight years are deducted from the bill, which means Tony would not see a significant reduction in his benefits. If, for instance, he opts to have payments of $50,000 a year made over a ten-year period, Social Security would discount $100,000 in payments that are made after Tony reaches full retirement age along with the $150,000 in expenses outlined above, as the money would be spent before Tony’s full retirement age. Instead of a $3,645 reduction in monthly benefits, Tony’s benefits would only be lowered by $2,604 a month.

Are There Limits on Earnings or Additional Income When I Start Receiving SS Retirement Benefits?

When you reach full retirement age, your earnings or additional income won’t impact your benefits no matter how much money you earn.

Can I Convert My SSDI Payments to Retirement Payments Before I Reach Full Retirement Age?

You cannot convert your Social Security Disability Insurance to retirement benefits before you reach full retirement age. However, you can make the switch from SSDI to retirement benefits at any point after your sixty-second birthday. This switch is not made automatically; you’ll have to apply to stop receiving SSDI benefits and instead receive SS retirement benefits. However, if you switch from SSDI to retirement benefits you could lose up to 28% of your annual income as Social Security reduces retirement benefits for those who apply for early payments. The amount of money you lose depends on when you apply for SS retirement benefits and the age at which you would be considered “full retirement age”.

Generally speaking, switching from SSDI to SS earlier than necessary is not a smart financial move. However, it can be the best option for people in special circumstances:

If you are set to receive a lump sum settlement or win a lot of money from a lawsuit, you could lose some or even all your SSDI benefits if you receive immediate payment. In such an instance, switching to SS retirement benefits will enable you to keep your full lump-sum payment even if you do lose some of your SS income as a result.
Perhaps you’ve started your own business while on SSDI and the money you’ve earned so far hasn’t impacted your SSDI payments. Now, however, your business is taking off, and you want to keep all your earnings. If so, switching to retirement payments can help you bring in more money per month than you would have otherwise.
Your wife or child could qualify for a higher benefit rate if you switch from SSDI to retirement benefits.

The decision to start collecting early benefits is one that will have a lasting impact on your retirement income. Once you’ve applied for Social Security retirement income, you can’t change your mind and defer payments until a later date. This same point applies to the spouse of a person who is SSDI income and who wants to receive early retirement benefits. If you’re thinking about applying for early SS retirement income, it may be wise to schedule a consultation with a disability attorney who specializes in Social Security.

In most instances, spousal Social Security payments remain the same once a person who is on SSDI switches to SS retirement payments upon reaching full retirement age. However, if your spouse filed for Social Security retirement benefits before reaching full retirement age, he or she may want to file for spousal benefits once you reach full retirement age and switch from SSDI to SS retirement income. In such an instance, the person who files for spousal benefits could receive the same amount of money as you do. Here is an example that illustrates this point:

Kathy and Bob are both 62 years old. Bob is on SSDI; Kathy is not. Kathy opts to file for early SS retirement benefits, and currently receives $1,000 a month. When Bob reaches full retirement age, he will receive $1,200 a month. At this point in time. Kathy can file for spousal benefits; then, she will receive $1,200 a month as well. This is the total sum of her monthly SS payment, not a payment added to the previous $1,000 a month she was receiving before applying for spousal benefits.

Alternatively, a person who is on SSDI could switch to spousal benefits if his or her spouse is the one who is set to receive the most money. If Bob, for instance, is currently earning $1,000 a month in SSDI income but Kathy, who reaches full retirement age before he does, would receive $1,500 a month in SS retirement income, Bob could apply to switch from SSDI payments to SS spousal benefits.

Bear in mind, however, that while a spouse can apply for spousal benefits, he or she cannot switch from spousal benefits to his or her own benefit later on. To use the above example, if Kathy delays her SS retirement until she reaches full retirement age and applies for spousal benefits at this time, she can’t change her mind later and apply for her own benefit at a later date. The amount she receives is permanently connected to her husband’s SSI retirement income permanently.

A person on Social Security Disability Insurance doesn’t need to do anything to keep the monthly payments coming, as the payments are automatically switched to SS retirement income once a person reaches full retirement age. However, that does not necessarily mean an individual on SSDI should simply sit back and allow the switch to happen in due time.

There are cases when taking action before or even after reaching full retirement age could be in a person’s best interest and enable him or her to receive more monthly income than would otherwise be possible.

If you find the information above doesn’t cover our personal situation, or you feel you qualify for more income than you are currently receiving, seek legal help from a disability lawyer and/or a tax planning professional as soon as possible in order to receive the compensation that is your due.