How Social Security Disability Insurance Works

Most people think of Social Security as a retirement benefit, and that’s understandable. Among the 61 million Americans receiving Social Security at the end of 2016, 68%–44.3 million people–were retired.

But Social Security’s broad aim is to protect against the risk of lost income from work. The income loss might be due to retirement, disability, or to a survivor after the death of a family breadwinner. Last year, 14% of Social Security beneficiaries (10.6 million people) were disabled workers; the remaining 18% were survivors, spouses, or children of workers entitled to benefits.

Social Security Disability Insurance is an especially critical component of the program. Added to Social Security’s core benefit structure during the Eisenhower era, it works hand-in-glove with retirement benefits. A young person starting a career today has a 1 in 3 chance of dying or becoming disabled before reaching Social Security’s full retirement age, according to Social Security Administration data.

The retirement and disability programs also are financially joined at the hip.

Workers and employers alike contribute to the disability insurance fund through their payroll tax contributions. (Currently, 2.37% of the total 12.4% payroll tax goes into the disability fund, split evenly between workers and employers.)

The trust funds for the two programs technically are separate, but when you hear discussion of Social Security’s long-range financial challenges, the two usually are discussed together. The combined Old-Age, Survivors and Disability Insurance trust funds are projected to be exhausted in 2034. And Congress has authorized small reallocations from time to time between the funds when one or the other faces a near-term shortfall–most recently in 2015.

Disability benefits can serve as a sort of early retirement benefit for those who no longer can work. This year, 70% of disability beneficiaries are older than 50, and 35% are older than 60, according to the Social Security actuaries.

“For most people, they are buying an insurance policy when they’re paying into Social Security,” says Lisa Ekman, director of government affairs for the National Organization of Social Security Claimants’ Representatives, a group of attorneys that handles disability cases. “It doesn’t really matter to them if they are unable to keep working due to a disability or retirement.”

But that doesn’t mean SSDI is easy to get. You’ll see sensational headlines from time to time alleging massive fraud against the program by “freeloaders”–and certainly, some of that occurs. And, the number of people receiving SSDI has risen sharply in recent decades, but not mainly due to fraud. Instead, the causes were population growth, aging of the baby boomer generation, growth in labor force participation by women (thereby qualifying them to receive SSDI), and a higher full retirement age.

Some researchers have concluded that the business cycle affects application trends. For instance, applications jumped in the wake of the Great Recession of 2008-2010–but approval rates actually fell.

The reality is that SSDI is tough to get. In order to qualify, you must have worked at least 25% of your adult life (and five of the past 10 years); suffer from a severe physical or mental impairment that is expected to last 12 months or result in death; and be unable to perform “substantial gainful activity.”
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