Understanding Social Security and Disability Insurance — Is Your Income Covered?

Could you live on $1,200 a month? What about no income at all? For many disabled Americans, that is the reality they live in every day after being approved or worse, denied, for Social Security Disability Insurance benefits.

While most workers assume it is unlikely that they will become disabled during their working years, the facts don’t lie:

One in four 20-year old workers will not make it to retirement without becoming disabled.

Disability insurance can provide a much-needed safety net, but few people have this important coverage. One of the number one reasons people forego private disability insurance is the misconception that the Social Security Administration will provide replacement income in case of disablement. The truth is, qualifying for and living off of SSDI is not as straightforward as it may seem.

The Social Security Administration reports that only 1 in 3 applications for Social Security Disability Insurance were approved in 2013.

Getting approved for SSDI

Applying and getting approved for Social Security Disability Insurance is no easy process. There are no guarantees, and most people are denied benefits. Regardless of the word of your doctor or of how detailed your medical records are, the ultimately decision to approve or deny benefits is up to the SSA.

In fact, the Social Security Administration reports that only 1 in 3 applications* for Social Security Disability Insurance were approved in 2013. The high rejection rate means that the clear majority of people who apply for disability benefits will be rejected.

If you are approved, there is a five-month waiting period from the onset of a disability (referred to by the SSA as an “established onset date”) before you can begin receiving payment of benefits. The first payment is for the sixth full month after the month of your disability, which will not be paid until one month later. In other words, someone disabled on March 5th would not receive the first disability check until October.

Of course, it could take longer before the SSA approves an application or an appeal for an application that was previously denied. During the waiting period, many applicants are left to rely on personal savings or retirement accounts to cover monthly expenses. Even after the first SSDI checks begin to come in, supplemental income is almost always necessary to make ends meet.

SSDI is Unlikely to Replace Your Income

It is highly unlikely that you would be able to replace 100 percent of your lost income if you are approved for SSDI. Sure, Social Security Disability benefits can help, but it’s usually a drop in the bucket compared to the actual financial needs a disabled worker would face if suddenly left without an ability to earn income.

The reason for this is due to the formula the Social Security Administration uses to determine your SSDI benefit. The SSA uses your actual income in up to 35 of your highest earning years to find your average indexed monthly earnings.

It adds that to your base benefit, or primary insurance amount, which is calculated using a table of bend points available on the Social Security Administration’s website.

All of this put together typically comes out to only a fraction of the income lost due to disability. In 2016, for example, SSDI payments averaged a meager $1,166 per month, with a maximum benefit for previously high-earners of $2,639.

To find out what your own SSDI payments would be if you became disabled this year, simply log-in to the SSA website and check your statement.

The Case for Disability Insurance

Today’s workers are more insured against death than they are against disability. This seems a little unbalanced, considering workers are three times more likely to become disabled before retirement age than they are to actually die.

We insure ourselves against the loss of many important things – our health, homes, and cars, for example; but what about our ability to earn income and support our families and dreams for the future?

Like SSDI, private disability insurance payments are not meant to replace income completely, but they are meant to provide an important safety net – usually about 60 percent of current salary. Not to mention, the benefits may begin paying as soon as 60 days after the onset of a disability – not five months later, like SSDI.

This can provide much-needed income during a time when many people must rely on personal savings before SSDI payments begin. Furthermore, long-term disability insurance may pay benefits even if you are denied SSDI benefits by the Social Security Administration.

Disability Insurance and SSDI Eligibility

Although some benefits, such as workers compensation insurance, may affect your eligibility for SSDI, payments made from private insurance, such as a personal disability insurance policy, are unlikely to have any effect on the amount of SSDI you may qualify for.

That means that a person who is approved for SSDI and a personal disability insurance claim may be able to draw benefits from both entities, significantly increasing monthly cash flow and more effectively replacing lost income.

However, long-term disability insurance benefits may be inversely affected by the approval of disability benefits by the Social Security Administration.

Often, long-term disability insurance claimants are required to apply for SSDI, since LTD companies are allowed to reduce benefit amounts dollar for dollar according to the value of SSDI payments. It is important to note, though, that you can still qualify for disability benefits from an LTD insurance plan even after being denied SSDI benefits from the SSA. Long-term disability insurance companies pay benefits based on your ability to provide sufficient medical evidence and the type of disability you have – not your ability to qualify for SSDI.

Get a Complimentary review of your Disability Insurance

Source: *https://www.ssa.gov/policy/docs/statcomps/di_asr/2015/sect04.html
Written by Jan Axel Tribler, CFP® and Honza Hroch Founders of CreativeNurse®
Jan Axel Tribler®, Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. CreativeNurse® Financial Resources is not an affiliate or subsidiary of PAS or Guardian.
This material contains the current opinions of the Jan Axel Tribler ®, but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
2017-39718 10/17