Does Social Security Retirement Replace Social Security Disability Insurance?

By Steve Perrigo

Social Security Disability Insurance (SSDI) and Social Security retirement benefits are two vital programs administered by the Social Security Administration (SSA). This year an average of almost 67 million Americans per month will receive a Social Security benefit, totaling about $1.4 trillion in benefits paid during the year. Social Security is the major source of income for most people over age 65, but the agency provides more than just retirement benefits. Last year, retired workers and their dependents accounted for 76.9% of total benefits paid. Workers with disabilities and their dependents accounted for 11.6% of total benefits paid, according to the agency.

SSDI and retirement benefits were both created to provide financial support, but they serve different purposes. Social Security Disability Insurance is a federal insurance policy that you’ve paid into via your FICA taxes for all the years you worked. One hundred fifty nine million American workers have access to this program. If these individuals become unable to work due to an injury or disability, they are covered by SSDI. The monetary support you receive through Social Security disability benefits continues until you’re able to return to work on a regular basis or until retirement age.

Social Security retirement is also paid into via your FICA taxes. Retirement benefits are intended to provide an income stream once you reach retirement age, which can be 65 or 67 years of age depending on the year you were born.

Some people mistakenly believe that if they receive SSDI, they forgo their Social Security retirement benefits or can receive both SSDI and retirement simultaneously. They are two separate benefits, but one dovetails into the other. Social Security disability benefits automatically convert to retirement benefits when beneficiaries reach full retirement age. So, when you receive SSDI benefits, it’s similar to getting your full retirement benefits early. In addition, you may also be able to receive Medicare coverage earlier than age 65, as Medicare is included with SSDI benefits after a waiting period.

How SSDI Benefits Are Calculated

The SSA determines your benefit amount based on your lifetime average earnings before you became unable to work. Your payment amount will be calculated using your covered earnings. Again, this is money you made at jobs where you paid FICA taxes.

Your SSDI monthly benefit will be based on your average covered earnings over a period of time, which is referred to as your average indexed monthly earnings (AIME). The SSA uses these amounts in a formula to determine your primary insurance amount (PIA). This is the basic amount used to establish your benefit.

The maximum benefit you can receive in 2023 is $3,627 per month, up from $3,345 in 2022.The SSA and SSDI representation organizations have benefits calculators that you can use to obtain an estimate of your monthly benefits. This year, the average SSDI payment for an individual is $1,484 while the average monthly benefit for a recipient with a family is $2,616. SSDI also protects your retirement money with an earnings freeze that could result in a higher retirement income.

Latest Amount and Quarters of Coverage explanation

In 2023, the amount of earnings required for a quarter of coverage (QC) is $1,640. The terms “Quarter of Coverage,” “Social Security credit,” and simply “credit” are all used interchangeably. A QC is the basic unit that determines whether you are insured under the Social Security program. You can only earn four QCs in one year, no matter how much money you make.

Every year the amount of earnings necessary for credits increases slightly as average earnings levels rise. The credits you have earned stay on your Social Security record even if you change jobs or have no earnings for a while.

You need at least 10 years of work (40 QCs) to qualify for Social Security retirement benefits. The SSA bases the amount of your benefit on your highest 35 years of earnings.

While you cannot receive SSDI and Social Security retirement benefits at the same time, you can transition from one program to the other based on your changing circumstances and age. If you or someone you know is considering applying for SSDI, we advise consulting with a Social Security representative to help navigate the complex SSDI program and ensure the SSA receives complete information based on your individual circumstances.

To learn more about income protection, visit RealityCheckup.info, which is part of a CDA consumer outreach program to help working adults understand the importance of having alternate sources of income for times when they cannot work due to illness, injury, or pregnancy.

About Steve Perrigo

Steve Perrigo has written 9 posts in this blog.

Steve Perrigo, J.D., is Vice President & Head of Sales and Account Management. He joined Allsup in 2010 following 17 years with the Social Security Administration (SSA) in various roles of increasing responsibility, including Claims Representative, Technical Expert, Operations Supervisor, and Assistant District Manager. Steve leads Allsup’s national account sales activities and provides consultative guidance to client companies by analyzing complex data sets that compare performance against historical measures, Allsup’s business results, and industry benchmarks. His consultation includes leveraging his prior experience with the SSA to identify and analyze macro-level trends with the Social Security Disability Insurance program, and providing timely insights and client updates through channels such as Allsup’s commercial blog. Steve’s educational background includes a law degree from the Nashville School of Law, where he graduated in the top 10 of his class, and a bachelor’s degree from The State University of New York. He currently is an adjunct professor of Social Security Disability Law at the Nashville School of Law.