Ask Rusty – How does Social Security disability work with private disability insurance?

Dear Rusty: If someone is collecting long-term disability through their company and the company states the employee also must apply through Social Security, how does this work? Does the amount of Social Security decrease from the amount that the person would normally receive upon retirement? Is long-term disability for life, or just until you are of retirement age? How about for the spouse of that individual? Would it have any impact on them? Signed: Concerned

Dear Concerned: It's common for private long term disability (LTD) insurers to require that you apply for Social Security Disability Insurance (SSDI) benefits. Typically, the private LTD benefit will be offset (reduced) by the federal SSDI benefit.

The SSDI benefit amount, if awarded, will be the full Social Security benefit earned up to the point the recipient becomes disabled and unable to work. That means someone on SSDI before full retirement age (FRA) gets their FRA amount earlier (FRA is somewhere between 66 and 67 depending on the year of birth). The SSDI benefit will be based on the disabled person's lifetime earnings history, unreduced for claiming earlier than full retirement age. SSDI will automatically convert to regular SS retirement benefits at the same amount when FRA is attained. Thus, getting SSDI doesn't detract from the person's FRA benefit amount; rather they get their FRA amount earlier.

Social Security disability benefits last for as long as you remain disabled, or up to your SS full retirement age. To be eligible, the disability must be expected to last for at least one year, and the disability must render you unable to perform significant work. You must also have worked recently (usually at least 5 of the last 10 years) to maintain eligibility, and you must have contributed Social Security FICA taxes (or self-employment taxes) from your work earnings. Only very limited work earnings are allowed when collecting Social Security Disability Insurance benefits, and Social Security may periodically require confirmation of eligibility.

Applying for SSDI is a relatively easy process which can be done online at www.ssa.gov/applyfordisability, or by calling SS directly at 1.800.772.1213. Depending on the nature of the disability, it usually takes 3 to 5 months to obtain a determination and, if SSDI is approved, there is a 5 month wait for benefits to start. If the SSDI application is initially denied (about 65% of all initial applications are) you can exercise several levels of appeal, starting with simply requesting a reconsideration by Social Security, followed, if necessary, by a hearing with an independent Administrative Law Judge, a review by the SSDI Appeals Council, or even an appeal to Federal Court. Hopefully, if the applicant is now on private long term disability, the SSDI application will be initially approved.

As for whether the spouse of a person on SSDI is affected, much depends on the spouse's age and how the spouse's own SS retirement benefit compares to the disabled partner's SSDI benefit. Benefits for a spouse are available as early as age 62, but the spouse's personal FRA benefit amount (from their own lifetime earnings record) must be less than 50% of the disabled partner's SSDI amount to get a spousal boost from the disabled spouse. Otherwise, one marriage partner being on SSDI will not affect the other partner's personal Social Security retirement benefit.