Clients often ask if they can receive Social Security Disability benefits (SSDI) and retirement benefits. The quick answer is no. Once you reach full retirement age (between 66 and 67, depending on your year of birth), the Social Security Administration (SSA) converts an individual's SSDI benefits into regular retirement benefits. One exception applies to individuals who choose to retire early, as this comes with an important caveat that we discuss below.
However, whether you can receive pension and SSDI benefits depends on what you mean by “retirement.” For the purposes of SSDI, retirement refers to benefits paid through the SSA. However, Social Security retirement benefits aren't always the only benefits people receive when they retire. Benefits can also be paid in retirement through an employer-sponsored pension or 401(k) plan. While many people generally refer to these benefits as “retirement” benefits, for the purposes of receiving SSDI and retirement benefits, they are very different.
Well, the longer answer is, you can't get SSDI and retirement benefits from the SSA. However, you can receive SSDI and benefits through a pension or 401(k).
The Difference Between Social Security Retirement and Disability
The main difference between Social Security Disability Insurance and Social Security Retirement is simple. With Social Security Disability Insurance, you must prove that you are disabled. However, Social Security retirement is based on age. We generally advise clients not to work unless they plan to work full-time because you will lose benefits if your income exceeds a certain amount. You can start receiving your pension at age 62, but there will be deductions if you start receiving your pension before age 67. To learn more, watch this short video.
Pensions and 401(k) Benefits and Social Security Retirement Benefits
Pensions and 401(k) plans are private benefit plans that some government employers provide to their employees. Pensions guarantee employees a defined benefit upon retirement (retirement age varies by plan). Under a 401(k) plan, employees can choose to contribute a certain portion of their monthly income to the plan, and the employer usually matches that portion. The amount of benefits paid in retirement depends on several variables, including the structure of the plan, the amount the individual wants to withdraw, and, of course, the value of the plan.
Social Security retirement benefits are based on an individual's lifetime earnings. The SSA considers up to 35 years of an individual's earnings and retirement age when calculating monthly benefits. This means benefit amounts vary.
SSDI and retirement benefits
As we said before, you cannot receive SSDI and Social Security retirement benefits at the same time. The purpose of SSDI benefits is to replace a portion of the beneficiary's income when they are unable to work due to a disability. Superannuation, on the other hand, is designed to provide an income stream once the recipient reaches retirement age, which is again between 66 and 67 years old, depending on your year of birth.
Logically, it makes sense to ban both benefits – your loss of income at retirement age is not due to disability, but to your retirement. When this happens, SSDI benefits are converted into retirement benefits. Essentially, SSDI is a retirement benefit for those who can no longer work but have not yet reached retirement age.
However, individuals can receive SSDI benefits simultaneously with benefits from a pension or 401(k) plan, although your SSDI benefits may reduce your pension amount. Generally speaking, whether distributions from a pension or 401(k) will reduce your monthly SSD benefit depends on whether you paid Social Security taxes on wages earned in the pension or 401(k). If you do this, there will be no reduction. If you do not pay Social Security taxes on these wages, your monthly SSDI benefit will be reduced. But you can still receive both.
Shifting from SSI and SSDI to retirement benefits
Watch our short video to learn more.
Early retirement exception
One exception to the prohibition on receiving SSDI and retirement benefits is for individuals who elect to retire early. Early retirement is possible at age 62, but there is a penalty – your monthly benefit amount will be reduced by 30% for life, depending on how early you retire.
Not only does the early retirement exception allow you to receive both benefits, it also eliminates the penalty. However, for exceptions, the following (in the specified order) must occur:
- Choose early retirement;
- Apply for SSD benefits back retire, and;
- The SSA must find that your disability began forward You chose to retire early.
If these criteria are met, the SSA will pay the difference between the full disability benefit and your early retirement benefit, meaning you essentially receive both at the same time (although the amount you receive cannot exceed the full disability benefit). The SSA will also pay you the difference for the months you did not work but were not approved for SSD benefits. When you reach full retirement age, your monthly SSD benefits will convert to full retirement benefits without paying an early retirement penalty.
For example, let's say you have a health condition that makes working increasingly difficult. At age 62, you elect to retire early and receive a $1,000 benefit. You then apply for disability benefits; after one year, you will receive your $1,300 SSD benefit, and your disability start date will be determined a few months before your retirement. Because the SSA found you have a disability forward If you choose to retire early, it will pay you an early retirement benefit of $1,000 plus an SSD benefit of $300, so your total monthly benefit is equal to the SSD bonus. SSA will also retroactively pay you $300 for each month you are entitled to SSD benefits while you wait for your application to be approved.
Additionally, when you reach full retirement age, your SSD benefits will convert to retirement benefits and no early retirement penalties will apply.
However, if you apply for SSD benefits back If you retire early, or if your application is refused, the early retirement penalty will continue to apply and you will receive a reduced pension for life.
If you have a health condition that makes it difficult for you to work, you may be tempted to opt for early retirement and then apply for disability benefits to help bridge the gap while you wait for your application to be approved. However, there is no guarantee that your application will be approved, which means you may find your lifetime retirement benefits reduced.
SSDI Benefits and Retirement FAQs
Can I receive SSDI and Social Security retirement benefits at the same time?
Won't. Once you reach full retirement age (usually between ages 66 and 67), your SSDI will automatically convert to standard Social Security retirement benefits.
Can I receive SSDI and a pension or 401(k) at the same time?
Yes. You may receive both, but in some cases SSDI may be reduced depending on whether the income used to earn the pension is subject to Social Security tax.
What is the difference between SSDI and Social Security retirement benefits?
SSDI is based on disability and inability to work. Retirement benefits are based on age and your lifetime earnings history.
Are there exceptions to early retirement?
Yes. If you retire early at age 62 and the SSA later determines that your disability began before you retired, you can receive both benefits at the same time without paying an early retirement penalty.
Will early retirement affect my disability case?
Can. If you are denied disability, your retirement benefits may be permanently reduced. Talking with a disability attorney before filing can help you make the right decision.
When Should I Talk to a Social Security Disability Lawyer?
Before choosing to retire early or file for disability. An attorney can help evaluate your eligibility, protect your benefits, and guide you through SSA requirements.
An experienced Social Security Disability attorney can help you determine whether early retirement is the right choice. Call Good Law Group for a free case evaluation: (847) 577-4476.
