Social Security Disability and Your Clients: The Real Story

A primer on Social Security Disability Insurance, the program’s largely misunderstood non-retirement benefit.

Financial advisors have gained more knowledge about Social Security in recent years, especially when it comes to optimizing retirement benefits through delayed claiming. But have you taken the time to understand the ins and outs of Social Security’s non-retirement benefits—especially disability? 

Most people think of Social Security as a retirement program—and when first passed into law in 1935, the principal aim was to reduce very high poverty rates among seniors. But Social Security evolved over the years as Congress added broader goals.

The program’s modern design is to protect against the risk of lost income from work—whether that results from retirement, disability or the death of a family breadwinner. Of the 61 million Americans receiving Social Security at the end of 2016, 68 percent were retired; 18 percent were survivors, spouses, or children of workers entitled to benefits; and the remaining 14 percent were disabled workers. 

Advisors should take the time, in particular, to understand Social Security Disability Insurance. A young person starting a career today has a one-in-three chance of dying or becoming disabled before reaching Social Security’s full retirement age, according to Social Security Administration data. Here are a few key points to understand about how SSDI works, and how it interacts with other key insurance benefits.

An earned benefit, not welfare. SSDI is funded through the Disability Insurance Trust Fund. Revenue for this fund comes chiefly through the payroll tax levied on workers and employers. Currently, 2.37 percent of the total 12.4 percent payroll tax goes into the disability fund, split evenly between workers and employers.

Discussion of Social Security’s long-range financial imbalance often muddles together discussion of the disability fund and the Old-Age and Survivors Fund. The Old Age, Survivors and Disability Insurance Program is referred to as OASDI; when you hear a projection that the Social Security trust funds will be exhausted in 2034, that refers to the combined OASDI funds. From time to time, Congress authorizes small reallocations between the funds when one or the other faces a near-term shortfall—most recently in 2015.

print Print Page share Share bookmark Bookmark