Understanding Disability and Social Security Benefits: Which Is Best for You?
Many people are losing their jobs because of the current economic environment while others are trying to decide if they should even return to their jobs. Understanding your benefits and how they pay out may help you with your decision.
First let's understand what these benefits are:
- Long Term Disability Income (LTDI), is an income insurance plan that is either offered through your employer or you may have purchased a personal commercial plan. Generally, the LTDI through your employer pays out after the Short-Term Disability has been exhausted, then it will pay out according to the plan. If your employer is paying the premium, then it generally pays between 60% - 66% of your income. It will also be taxed at your income tax rate. Therefore, you will be taking home considerably less than your regular take-home pay. If you have a personal policy and you pay the premiums then your income benefit will not be taxed. They will say how much they will pay out and for how long and if you can continue to work and still receive the full or partial benefit.
- Social Security Disability Income (SSDI) is a benefit that you can take if you become disabled through injury or illness and you cannot be substantially gainfully employed. (Making more than $1260.00/month). It can take up to 6 months to get SSDI, so having LTDI is good to have so you will not have a non-income period.
- Social Security, (SSI) is a Federal Income Retirement program that pays out at retirement of 62 years old or older. You must have worked and paid into the program to receive a benefit.
How do these programs work?
You can make more than $18,240 per year, but your Social Security will then start to be taxed. If you are younger than full retirement age during all of 2020, $1 will be deducted for each $2 you earn above $18,240. If you work and are at full retirement age or older, you can keep all of your Social Security benefits, no matter how much you earn. You can collect Social Security early at age 62 but many people defer this to age 65 or later because the benefit is higher.
If you have SSDI, it will automatically convert to regular Social Security at age 65. Most LTD Insurance policies also cut off at age 65 because you are then eligible for the Social Security Income. However, there is no restriction from the Social Security Administration that would stop you from continuing to collect Social Security Retirement income and LTD Income if your policy allows it. Some LTD Income policies will allow you to continue collecting benefits after you have qualified for Social Security disability Income, but some don't.
If you have a personal LTDI policy and it is an own occupation policy you can continue to work at another job as long as it is not the same occupation. However, you may be limited to the amount you can make. Refer to the policy stipulations. Most employers will not allow you to work and receive Long term Disability income from their sponsored policies.
I would recommend speaking to your HR manager regarding their plan to understand how the programs coordinate.
Diahanna Vallentine, BCPA
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