When It Pays To Switch From Disability To Early Social Security

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Photo credit: jb

There’s at least one circumstance in the Social Security retirement benefits world where it seems you can have your cake and eat it too. For whatever reason, this one has completely slipped past me up to this point, but I assure you, it’s legitimate and a very real part of Social Security’s rules. 

Not long ago, I was looking over some information on Social Security audits (Hey, some people collect stamps, I read audits. Sue me!), when I came across an audit that caught my eye. This particular audit, done by the Office of the Inspector General of the Social Security Administration, was titled Social Security Beneficiaries Financially Advantaged by Electing to Convert from Disability Benefits to Reduced Retirement Benefits. Naturally, with a seductive title like that, I had to know more!

The audit explains how certain Social Security disability recipients may achieve an advantage if they make a change from disability benefits to retirement benefits, at some point at or after age 62. This might work in your favor, for example, if you were on Social Security disability benefits and you had a work opportunity available to you. The restrictions on working while collecting disability are pretty harsh, especially when compared to the restrictions on working when you’re receiving Social Security retirement benefits.

While on disability, the Substantial Gainful Activity rule only allows you to earn $1,310 in a month. If you earn more than that amount, your benefit will cease completely, and you’ll need to request a reinstatement of benefits if your income falls below that level in the future (and you’re still disabled).

On the other hand, your earnings while receiving Social Security retirement benefits become limited once you’ve earned $18,960 in a year (works out to $1,580/month), so you’ve got a bit more headroom to work with. Plus, when your income goes over the $18,960 limit, your retirement benefit doesn’t completely cease – for every $2 over the limit, $1 in benefits are withheld. Aaaannnnddd – you get credit for those withheld months later when you reach Full Retirement Age. 

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