Millions of Americans rely on Social Security disability benefits to help make ends meet after a debilitating injury or illness. But one key question that people on disability face is what will happen with their benefits after they retire. The good news is that not only do most disability recipients keep getting the payments they're used to, but under certain circumstances, they can also get additional payments based on their spouse's work history.
How spousal benefits and disability interact
The biggest fear among Social Security disability recipients is that their benefits will end when they reach retirement age. Indeed, many private long-term disability policies stop making payments at retirement. But Social Security disability is different, as benefits automatically convert to retirement benefits at the appropriate age -- and they aren't reduced, even if the disabled worker's work history would normally be insufficient to provide that level of monthly payment.
For many people, sustaining their previous benefit levels after retirement is the best possible outcome. But for those who are married, disabled retirees can potentially get even larger payments by taking advantage of the spousal benefits they're entitled to receive based on their spouse's work history.
In general, if you're married, you're entitled to receive half of your spouse's benefit amount at full retirement age. If you claim spousal benefits early, then the amount of the monthly payment is adjusted downward by as much has 30% for those who claim at age 62.
If you receive disability benefits, though, the equation changes. You can't double dip, getting full disability and spousal retirement benefits. But you can ask for excess spousal benefits if the amount you'd receive based on your spouse's work history is larger than your disability payment. You simply get additional money to bring you up to the higher level, and, again, the amount of the excess benefit is reduced depending on the age at which you start receiving it.
Why full retirement age matters
Where things get tricky, though, is when you reach full retirement age. At that time, your disability benefits automatically convert to retirement benefits. But you also have the option of choosing not to accept those retirement benefits, instead claiming spousal benefits based on your spouse's work history. In general, if the spousal benefit is higher -- which usually requires that your spouse's own benefit be at least twice as large as your benefit -- then you'll get more money claiming under your spouse's work history.
The problem is that, just as with other early-retirement decisions, when you claim spousal benefits makes a huge difference. If you claim excess spousal benefits prior to full retirement age, you're stuck with that discounted amount for the rest of your life. If your spouse earned a lot more than you did, that can end up costing you far more than it gained you during the few years you received excess payments prior to full retirement age.
As a result, it's sometimes best to forgo receiving excess spousal benefits at the earliest available opportunity. You'll give up a small amount of cash up front, but the payoff will be substantially larger benefit payments after retirement that, in time, can more than make up for waiting.
In order to figure out the relative sizes of your disability benefit and your potential spousal retirement benefit, you'll need figures from both of your Social Security Statements. Although those statements no longer get mailed to you annually, the figures are available to you at the my Social Security website. Using the projections there, you can estimate future disability and spousal retirement benefits to make a more informed decision about which strategy will get your family the most in total payments.
Disability recipients have to deal with even more complex rules than most people receiving Social Security. But given the amount of money at stake, it's worthwhile to spend time figuring out how to get the most you possibly can.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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