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Social Security benefits (disability and retirement)

Lesson 97 of 105 · All lessons · Up next: New York State Disability Benefits Law →

Social Security in one sentence

Social Security is the federal Old-Age, Survivors, and Disability Insurance (OASDI) program. Workers and employers pay into it through payroll taxes (FICA, or self-employment tax for the self-employed), and in return the worker earns protection against three risks: outliving a paycheck (retirement), dying and leaving dependents (survivors), and becoming unable to work (disability). For an insurance producer it matters because it is the floor that private life, disability income and annuity sales are built on top of.

Earning eligibility: credits and insured status

Workers earn credits (also called quarters of coverage) from covered earnings, up to 4 credits a year. Insured status depends on credits:

  • Fully insured: generally one credit for each year after the year the worker turns 21 and before the year of death, disability or age 62, with a minimum of 6 and a maximum of 40 credits (about 10 years of work). Forty is the most anyone needs and is what retirement requires; a younger worker who dies or becomes disabled can be fully insured with fewer. Full insurance is required for retirement benefits, and it gives the widest survivor protection.
  • Currently insured: at least 6 credits in the 13 calendar quarters ending with death, disability or retirement. This is enough for some survivor benefits, such as benefits for a surviving parent caring for the worker's young children.
  • Disability insured: generally fully insured plus 20 credits in the last 40 quarters (younger workers need fewer).

Benefits are built from the Primary Insurance Amount (PIA), which is computed from the worker's average indexed earnings. For a retirement benefit that average covers the highest 35 years of covered earnings; disability and some survivor computations can use fewer years. Benefits are adjusted each year for inflation (a cost-of-living adjustment).

Retirement benefits

  • Full retirement age is 67 for anyone born in 1960 or later. Retiring then pays 100% of the PIA.
  • Early retirement can start at 62, with a permanent reduction.
  • Delaying past full retirement age earns delayed retirement credits (8% a year) up to age 70.
  • A spouse can receive up to 50% of the worker's PIA; eligible children and dependents can also draw on the worker's record.
  • A reduced benefit generally cannot be paid retroactively for months before the application is filed (42 U.S.C. § 402(j)(4)(A)).

Survivor benefits

When an insured worker dies, benefits can go to a surviving spouse at 60 (or 50 to 59 if the survivor is disabled) (42 U.S.C. § 402(e)(1)(B), (f)(1)(B)), to a surviving parent caring for the worker's child (42 U.S.C. § 402(g)), and to unmarried minor children. A small one-time lump-sum death payment is also available. Survivor benefits stop for the parent when the youngest child reaches 16, and the spouse's own benefit does not resume until 60. That gap is the blackout period, a classic reason to sell life insurance.

Disability benefits (SSDI)

The Social Security definition of disability is strict: the worker must be unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment expected to last at least 12 months or to result in death. It is not an "own occupation" test, and there are no benefits for partial or short-term disability.

  • Waiting period: benefits begin with the first month after the waiting period (42 U.S.C. § 423(a)(1)), which lasts five full months. People with ALS skip the waiting period (42 U.S.C. § 423(a)(1)(ii)).
  • Amount: the disability benefit equals the worker's full PIA, computed as though the worker had reached 62 in the first month of the waiting period. It is not reduced for age (42 U.S.C. § 423(a)(2)).
  • Proof: the worker must supply medical evidence. A statement about pain or other symptoms is not alone conclusive (42 U.S.C. § 423(d)(5)(A)).
  • Retroactivity: an application can recover up to 12 months of benefits the worker would have been entitled to had they applied earlier (42 U.S.C. § 423(b)).
  • Ending: benefits stop at death, at full retirement age (when they convert to retirement benefits), or in the third month after the disability ends (42 U.S.C. § 423(a)(1)).
  • Medicare begins after 24 months of disability benefits.
A diagram with a dark blue box at the top labeled Social Security, based on the worker's primary insurance amount. Three lines branch down to three boxes. The green box on the left is Retirement: needs 40 credits, the full insured status retirement requires, early benefits at age 62 reduced, full benefits at age 67 equal to 100 percent of the primary insurance amount, an extra 8 percent a year for delaying to age 70, and a spouse benefit of up to 50 percent. The orange box in the middle is Survivors: a widow or widower from age 60, a disabled widow or widower from age 50 to 59, a parent caring for the worker's child, and unmarried minor children, with a note that the gap in benefits is the blackout period. The blue box on the right is Disability: unable to do any substantial gainful work, an impairment expected to last 12 months or result in death, a five full month waiting period, a benefit equal to the full primary insurance amount with no age reduction, and Medicare after 24 months. A gray bar across the bottom says all three are funded by payroll taxes, FICA or self-employment tax, and that eligibility is earned in credits, up to four per year.
Social Security's three benefit types and who receives them

Why producers care

Social Security replaces only part of income, and its disability test is hard to meet. Private disability income insurance fills the gap, often with a Social Security rider (social insurance supplement) that pays when Social Security denies or delays a claim. Life insurance covers the blackout period and the shortfall in survivor benefits, and annuities supplement retirement income.

Key terms

Sample questions

What is the maximum number of Social Security credits a worker can earn in one calendar year?

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