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Will Disability Benefits Affect My Pension?

Will Disability Benefits Affect My Pension?

Although disability benefits will not generally affect your pension, your pension may affect the amount of monthly disability payments you receive. How a pension changes Social Security Disability (SSD) depends on the type of disability benefits you receive and the kind of pension you have.

Disability Benefit Programs

The Social Security Administration’s (SSA’s) disability benefits come in two forms:

  • Supplemental Security Income (SSI)
  • Social Security Disability Insurance (SSDI)

Each program has its own rules for qualifying and for how benefits are calculated.

Pensions and SSI

SSI is more likely to be affected by a pension because this is a need-based program with strict income and asset limits. The SSA must review your finances to determine eligibility. The amount of money you receive each month from various sources can affect eligibility.

If you are approved for SSI, the amount of your monthly pension may decrease the amount of your monthly SSI payments. This is known as an “offset,” because the SSA offsets the amount of disability pay based on income from other sources. SSDI and Your Pension

SSDI benefits are not financial need-based. To qualify though, you must have worked in the past and paid into the Social Security system through payroll taxes. In some cases, pension contributions that you and an employer made were exempt from Social Security taxes. This means no Social Security taxes were paid on pension contributions or on the earnings on which your pension contributions were based. This is less common today than it once was, but it can affect SSDI.

If you do have a pension based on earnings for which no Social Security taxes were paid, then the SSA considers your monthly pension payments differently. Disability benefits to which you are entitled may be decreased because of your pension. This does not mean you cannot get disability. It just means the monthly benefits you get will be offset by your pension payments.

Pensions that do Affect SSDI Benefits

Most private pensions and government pensions will have no effect on SSDI eligibility or the amount of monthly SSDI benefits you receive. This is because most pensions are not exempt from Social Security taxes, which in turn means you can receive pension payments along with full monthly SSDI benefits. There are occasional exceptions to this rule, however, including:

  • Some civil service retirement benefits
  • Certain disability pensions or long-term disability plans

SSD Benefits and Long-Term Disability Benefits

Although long-term disability (LTD) benefits are not technically a pension plan, this type of coverage can provide ongoing income for disabled workers, similar to a pension or annuity. LTD plans can be from private insurance companies or through employer-sponsored coverage.

Whichever type of LTD you may have, your insurance provider will usually require you to apply for SSD benefits if you begin collecting LTD. This is because monthly benefit payments through long-term disability insurance can be reduced or offset dollar-for-dollar by the amount of SSD benefits you receive.

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When Should I Begin Claiming Social Security Retirement Benefits?

The most commonly asked question would have to be, “When should I start claiming Social Security retirement benefits?” While there isn’t a universal age that’s “better” than another age, there are factors you may want to consider before deciding to claim your retirement benefits. First, you’ll want to learn as much as you can about how claiming at particular ages affects your monthly benefits. There are also personal, and family situations where claiming at certain ages may be more beneficial if not necessary than deciding on other ages. The following tackles these circumstances and is meant provide you important information so that you can decide for yourself which age is best for you and your family.

Consider Personal Factors

If you begin claiming retirement benefits early you will receive a reduced monthly payment for a longer duration, but if you wait you will take home a larger amount each month but for a shorter duration. When deciding on which path to go on you need to consider your financial need, your health, and family circumstances. Also, take into account whether or not you’ll be working while in retirement and if you possess alternative sources of income. Start planning your future retirement budget which includes savings for emergencies; this will give you an idea of how much you’ll need from Social Security to support your planned retirement life. Don’t rush, deciding on when to claim Social Security retirement benefits is very serious because it will affect how much money you’ll receive for the duration of your life and it could impact benefit protection for any of your survivors.

Delay Claiming Benefits To Receive A Larger Benefit Amount

Your full retirement age is determined by which year you were born. Click here to learn what your full retirement age is. Your estimated Social Security benefit is determined by how much you earned during your working career. The exact amount that you’ll receive each month from Social Security is determined by the age of when you begin receiving benefits. You’re able to claim retirement benefits starting from age 62 until age 70, and your monthly benefits will increase each year you wait to claim. Your decision on when to claim benefits is a permanent affair and will determine your benefits for the duration of your life. You’ll receive annual cost-of-living adjustments in addition to a higher benefit amount if you continue working while in retirement.

The following graph illustrates how delaying claiming benefits affects your monthly payments from Social Security:

For example, if in 2018 you turned 62, your full retirement age would be 66, and the amount you’ll receive each month starting at age 66 is $1,300. However, if you begin claiming retirement benefits at age 62, the SSA will lower your retirement benefits by 26.7% which would put you at $953 a month, but you will receive this over a more extended period compared to claiming at age 66. This reduction is permanent, and you won’t be able to appeal or affect it in any way. If you decide to wait until you’re 70, your retirement benefits will increase to $1,681. This is because the delayed retirement credits you accumulated after deciding to wait to claim social security retirements. If you claim at age 70, your monthly benefits would be 76% more than the retirement benefit amount you’d take home every month if you began claiming at age 62, so $728 more monthly.

 

You May Live Longer Than Expected

When planning you’re retirement, remember to consider the long term. It’s not uncommon for people to live longer than the average retirement age, and typically women live longer than men. Currently, one-third of the 65-year-olds will live until at least 90 years old, and 1 out of seven will age until at least 95. Social Security retirement benefits are provided to financial assist your life after you’re unable to continue working and as a safety net if you have no other sources of retirement income. Think it over, choose the retirement age that fits your personal and family situation the best, so you’re able to get the most out of Social Security.