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SSDI- will getting disability benefits reduce my retirement?

[caption id="" align="alignright" width="126" caption="Cover of Franklin D. Roosevelt"]Franklin D. Roosevelt[/caption]

Many disability applicants are concerned that if they file for Social Security Disability Insurance (SSDI) prior to their retirement age that this monthly cash benefit will deduct available funds from their SSA retirement benefit, leaving them without monthly cash assistance when they do decide to retire. This blog will address the difference between SSDI and SSA retirement benefits and how each benefit is funded.

What is Social Security Disability Insurance?

Social Security Disability Insurance or SSDI is a disability program which offers a monthly cash wage replacement to disabled workers who have a severe mental or physical health condition which is expected to last for at least 12 continuous months. This condition must be so severe that the worker will be unable to perform substantial gainful activity. Workers must also have worked and paid enough in payroll taxes to be considered “insured” by the SSA.

How is the Social Security Disability Insurance Program financed?

The Social Security system was created and enacted in 1935 when President Franklin D. Roosevelt (FDR) signed the Social Security Act of 1935. Eligibility for disabled workers was added in 1956. The goal of each of these programs was to provide an “economic safety net” for elderly or disabled workers who were no longer able to perform work.

According to the SSA, “SSDI or Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program are financed through employment taxes. Tax rates are set by law (see sections 1401, 3101, and 3111 of the Internal Revenue Code) and apply to earnings up to a maximum amount for OASDI.” There have been some years that the tax rate paid by the participants was supplemented by additional monies from the Federal Government’s general revenue.

For many years the tax rate for wages was 6.2 percent for employees and employers and 12.4 percent for self-employed workers.  The legislation has altered these rates recently. For 2011 and 2012, the OASDI tax rate is reduced by 2 percentage points for employees and for self-employed workers.

This separate account for disability benefits in the United States Treasury is referred to as the Disability Trust Fund. It was created in 1956 with the passage of the Social Security Act amendments and is funded by the taxes received under the Federal Insurance Contributions Act and the Self-Employment Contributions Act. This fund is automatically used to pay the monthly benefits to the SSDI workers and their beneficiaries.

What is SSA retirement?

SSA retirement benefits are offered to workers who have worked and paid employment taxes. Retirement benefits are offered as monthly wage replacement benefits. Full retirement age is 65 for anyone born prior to 1938 but for all workers born after this date the full retirement age is gradually increases until it reaches 67 for people born after 1959. Some workers may retire at age 62 but they will have to take a reduced retirement benefit.

How is SSA Retirement Financed?

According to the SSA, “Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act (FICA) and paid into the Old-Age and Survivors Insurance (OASI) and money flowing into the trust fund is invested in U. S. Government securities.” The OASI is a separate fund than the Disability Insurance fund that pays disability benefits to SSDI recipients.

So what is the bottom line? Your SSDI benefits and your SSA retirements are two separate benefits and taking SSDI prior to your retirement age will not reduce the amount of benefits you are entitled receive at retirement. For specific information about your payment amount you can refer to your Statement of Earnings sent annually by the SSA.
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