Social Security Disability Insurance

Disability insurance is something that many people don't worry about when they are young, single, and healthy.  But as the years pass, and financial responsibilities change, people naturally begin to think about the effects a sudden disability might have on those that depend on their income.  That's where Social Security can help.

In fact, the Social Security Administration claims that nearly 30% of working Americans become disabled before reaching their normal retirement age.  In this article, we are going to explain some of the disability benefits under the Social Security program.  We also have a separate publication that talks about the benefits of purchasing supplementary disability insurance.

Qualifying for Disability Insurance Benefits

To qualify for disability insurance under the Social Security system, a person must have worked in a job that was covered by Social Security.  If they've ever paid money into the Social Security system through payroll taxes, then they've worked in a job covered by Social Security.  It's easy enough to verify this contribution by looking at a pay stub.

Social Security Points System

The entire Social Security benefits program is built on a system of credits or points.  Generally, the more someone works, and the more money they earn, the more credits they accumulate.  In 2018, workers earned one credit for each $1,300 in wages.  The maximum number of credits someone can accumulate each year is four, so they would need to earn $5,200 in 2018 to earn the maximum of four credits.

Generally, citizens will qualify to collect benefits under Social Security if they've earned at least 40 credits.  Anyone that doesn't have 40 credits should pay a visit to the Social Security website.  There are many exceptions to this rule, especially for younger workers that become disabled.

Qualifying for Social Security Disability Insurance

To qualify for Social Security disability insurance, an individual needs to become totally disabled.  If they're only partially disabled, or the disability is expected to last for less than one year, they may not qualify for benefits.  Social Security's disability insurance is only for those that cannot return to work, or cannot adjust to other work.  A strict disability definition is used, which will be explained briefly below.

Qualifying Rules

To determine if someone is disabled, Social Security has a number of steps a candidate needs to go through sequentially.  That means they need to pass each of the steps outlined below to qualify for benefits:

  1. Work:  if someone is still working, and earning more than $1,000 each month, then they are not considered disabled.
  2. Severity of Condition:  a disability must interfere with the ability to work.
  3. Disabling Conditions:  the Social Security administration maintains a list of severe conditions that automatically qualify for disability insurance.  If someone's condition is not on the list, then a ruling will be made on the condition.
  4. Disability Ruling:  even if there is a serious disability, one that is not on the list mentioned above, the administration still needs to decide if this will interfere with the ability to work in an existing job.
  5. Other Work:  even if someone is unable to work as they did before becoming disabled, the administration must also rule their skills are not transferable to other types of work.

Applying for Social Security Disability Insurance

The process of applying for disability insurance benefits under Social Security is very simple; it's possible to call them at their toll free telephone number 1-800-772-1213, or visit the Social Security website link provided earlier.

Social Security Disability Insurance Benefits

To figure out someone's exact insurance benefits, the Social Security administration uses historical information they maintain through IRS tax records.  We have summarized the categories of benefits below, which go beyond individual benefits.  We have also provided several examples, so it's possible to estimate how much insurance someone might qualify for if they become disabled:

  • Family Disability Benefits:  each family member might also be eligible for benefits payments, but generally there is a limit of around 180% of the individual's benefit for the entire family.  So if someone qualifies for $10,000 as an individual, then their total family benefits cannot exceed $18,000.
  • Spousal Disability Benefits:  additional benefits are payable to a spouse if they are caring for a child under the age of 16 or a disabled child.
  • Benefits to Children:  if a child (or a dependent grandchild) is unmarried and under the age of 18, or a full time student age 19 or younger, then they qualify for additional insurance benefits under Social Security.

Example Calculations: Social Security Benefits 2016

Finally, we are going to provide several quick examples, all estimates assume the individual would pass the qualifying tests and have the full credits mentioned earlier:

Example 1:  if someone is age 45 and earning around $50,000 annually, their disability insurance benefits would be $1,558 per month, with a maximum family benefit of $2,902 per month.

Example 2:  if someone is age 45 and earning around $25,000 annually, their disability insurance benefits would be $1,035 per month, with a maximum family benefit of $1,566 per month.

Example 3:  if someone is age 35 and earning around $50,000 annually, their disability insurance benefits would be $1,641 per month, with a maximum family benefit of $3,120 per month.

Example 4:  if someone is age 35 and earning around $25,000 annually, their disability insurance benefits would be $1,077 per month, with a maximum family benefit of $1,642 per month.

Example 5:  if someone is earning around $95,000 or more, they probably qualify for the maximum disability benefits under the Social Security system.  In that situation, the maximum individual benefits are $2,351 each month with a maximum family benefit of $4,140 monthly.

Once again, a detailed benefits calculator can be found on the Social Security website.

2017 / 2018 Social Security Changes

Social Security is funded through a combination of employer taxes and employee payroll deductions.  Each year the amount of money an individual can contribute to Social Security, or receive in the form of benefits, is increased by a Cost of Living Adjustment (COLA).  Employees are taxed at a rate of 6.20% (OASDI), subject to maximum taxable earnings / contributions as shown in the table below:

Maximum Social Security Contributions and Benefits

  2010 2011 * 2012* 2013 2014 2015 2016 ** 2017 2018
Tax Rate 6.20% 6.20% / 4.20% 6.20% 6.20% 6.20% 6.20% 6.20% 6.20% 6.20%
Earnings Limit $106,800 $106,800 $110,100 $113,700 $117,000 $118,500 $118,500 $127,200 $128,700
Maximum Contribution $6,621.60 $6,621.60 / $4,485.60 $6,826.20 $7,048.40 $7,254.00 $7,347.00 $7,347.00 $7,886.40 $7,979.40
COLA for Benefits 0.0% 0.0% 3.6% 1.7% 1.5% 1.7% 0.0% 0.3% 2.0%
SSI Benefit Individual $2,366 $2,366 $2,513 $2,533 $2,642 $2,663 $2,639 $2,687 $2,788

* Note:  In 2011, employer contributions remained at 6.20%, while the rate was reduced to 4.20% for employees.  The reduction to the Social Security withholding rate was extended through February 29, 2012.

** Note: There is a decrease in full maximum benefits when there is no COLA, but there is an increase in the national average wage index.

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