If you live with a disability or care for a disabled loved one, you are not alone. Around a quarter of today’s 20-year-olds will be disabled when they reach retirement age. And yet only 35% of workers have long-term disability insurance, meaning many will rely on disability benefits from the federal government in the event they become disabled.
Learning how these benefits work is critical so you can understand how to get the financial support you need to make ends meet in the event that something happens to you or someone you love.
Let’s take a look at some of the different benefit options provided by the Social Security Administration (SSA), including how to qualify.
What is Social Security Disability Insurance (SSDI)?
Social Security Disability Insurance (SSDI) is a federal insurance program that provides financial assistance to individuals with a long-term disability who are unable to work because of their medical conditions.
If you qualify, the program issues monthly payments to you or certain family members. The size of your Social Security benefits is based on your lifetime earnings and is calculated using a formula that includes your average indexed monthly income and your primary insurance amount. More on what that means below.
Disability Claims Process
The first step in the disability claims process is to file an application with the SSA. You can submit an application online, by phone or by visiting your local Social Security office.
The SSA will review your application to determine if you meet basic eligibility requirements, including having a serious medical condition that prevents you from working.
If your application is approved, your application will proceed to the next stage, which involves a medical review to determine the severity of your condition. To do this, the SSA will consider your medical records, doctors̵7; opinions, and any other relevant evidence.
If your condition is severe enough to meet the SSA’s definition of disability, your claim will be approved and you will begin receiving benefits. Depending on the case and date of onset of disability, you may also be entitled to retroactive payments.
Work points and eligibility
Does your disability qualify? It depends on. For one thing, they only pay benefits for total disability. If you have a partial disability or short-term disability, you would not be eligible for SSDI benefits.
The Social Security Administration uses five questions to determine if your case meets the criteria.
- Are you working? In 2023, you cannot earn more than $1,470 a month and qualify for the program.
- Do you have a “severe” condition? It must prevent you from doing basic activities such as standing, walking, sitting, lifting or remembering.
- Is your state on their list? SSA maintains a list of eligibility requirements that can be found here. If it’s not on the list, they’ll evaluate it on a case-by-case basis.
- Can you do the work you could do before? Your disability must prevent you from performing your particular job.
- Can you do another job? Your condition and skills will be assessed to see if you can do another type of work.
In addition to these conditions, a Work Credit Scheme determines your eligibility for benefits. You earn one credit for every $1,640 in income and can only earn up to four credits per year. So if you’ve earned $6,560 in a year, this fills your quota for the year.
In most cases, you need 40 credits to qualify for grants, which corresponds to working for at least ten years. However, younger workers who become disabled before reaching this point may qualify with fewer points.
Average Indexed Monthly Earnings (AIME)
Your disability benefits are determined by something called Average Indexed Monthly Earnings, or AIME, which is calculated using your earnings history. The higher your AIME, the higher your SSDI will be. This is how it works.
First, the SSA adjusts or “indexes” your earnings to match the changes in general wage levels that took place during your years of employment. They use up to 35 years of income to calculate this index.
Then they take the years with the highest indexed earnings and divide the total amount by the number of months in those years. This gives you AIME.
Read more about how AIME is calculated here.
Primary Sum Insured (PIA)
If you’re thinking, “Great, more acronyms!”, we hear you. Basically, now that the SSA has calculated your AIME, it will use it to determine your PIA. And that, in turn, will determine your SSDI.
Confused? Don’t be. Basically, once the Social Security Administration understands your earnings history, it can use that figure to determine what Social Security benefits you would have received at a typical retirement age. This is based on three simple calculations.
Here’s how it works in 2023:
- Take 90% of the first $1,115 of your AIME
- Take 32% of the next $6,721 of your AIME
- Take 15% of your AIME over $6,721
- Add these numbers together
- It’s your PIA
(FYI: The dollar amounts in these calculations are called “inflection points” and are updated each year based on cost-of-living adjustments.)
SSI benefit calculation
There is another form of federal disability benefit: If you have limited income and are age 65 or older, blind, or disabled, Supplemental Security Income (SSI) provides financial assistance based on your individual needs. Unlike SSDI, SSI eligibility is not based on your work history or the amount of Social Security taxes you have paid.
Even if you are eligible for SSI, your monthly benefits may be reduced after you subtract your countable monthly income. The exact amount of your payments depends on your living situation, for example if you live alone, with a spouse or in a group home.
Some states supplement the federal SSI payment with their own state-funded programs, which can increase your total benefit amount.
Are you covered?
Due to the urgency of financial assistance in case of sudden disability or the strict requirements to be considered eligible, some people choose to purchase private disability insurance. It’s usually easier to qualify for and pay out sooner than Social Security.
Some private employers provide health insurance. But as with life insurance, it sometimes makes sense to secure your own health insurance. If it might be of interest, start by getting a free quote online for Haven Disability.