4 Things Everyone Must Know About Social Security Disability

Young woman sitting on a wheelchair. iStockalypse 2012 in Berlin.
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Tens of millions of people rely on Social Security benefits, with the vast majority of those payouts going to retirees and their families. But of the roughly 59 million Americans who'll receive Social Security benefits in 2014, disabled workers and their dependents make up almost 11 million, and the Social Security Administration pays out about $11 billion monthly to support them.

Disability benefits can be even more valuable than retirement benefits. You can plan for retirement (and you probably are planning for it) but you can't predict when an injury or illness might leave you unable to work, and sorely in need of financial support. Below, you'll learn four of the most important aspects of Social Security disability benefits so that if the time comes that you need them, you'll know the basics.

1. How One Qualifies for Social Security Disability

Just as with retirement benefits under Social Security, you have to work a minimum length of time to qualify for disability benefits. Social Security uses the same credit system for disability as for retirement, with every $1,200 in annual wages earning one credit, up to a maximum of four credits per calendar year.

Unlike retirement credits, though, the number of credits you need to qualify varies by age. For those 62 or older, you need to have 40 credits, and you have to have earned at least 20 of those credits within the 10-year period prior to your becoming disabled. However, the total number of credits falls by two for every two years younger than 62 you are, reaching 20 credits for those between the ages of 31 and 42. Younger workers need to have credits for half the time between their 21st birthday and the year they become disabled, with a minimum of six credits for those 24 or younger.

2. How Social Security Defines a Disability

If you're fortunate enough to have disability insurance through work, you probably know that different insurance covers different disabilities. Social Security, though, uses a strict definition of disability that excludes both short-term disabilities and partial disabilities.

For you to claim benefits, Social Security requires that the disability be expected to last for at least a year or result in death. In addition, the disability must be total, leaving you unable to do the work that you did previously and unable to adjust to other types of work because of your condition. It's largely because of this strict definition of disability that the Social Security Administration initially denies two-thirds of all disability claims.

3. How Much You and Your Family Will Get

The amount of your disability benefits depends on your work history. Just as with retirement, Social Security looks at your average earnings indexed for inflation and uses a formula to determine your disability payments. But unlike retirement benefits, for which Social Security assumes a full 35-year work history, disability payments are calculated based on your work record to date. That small difference results in a large addition to your disability benefits.

In addition, your spouse is entitled to disability benefits under two circumstances: either reaching age 62 or caring for a child under age 16. Children under 18 can receive benefits directly as well, as can students who are in high school and either 18 or 19 years old. Total family benefits are subject to an overall maximum, but all told, Social Security disability payments can provide a substantial replacement for past income.

4. How Disability Benefits Affect Your Retirement Benefits

%VIRTUAL-WSSCourseInline-963%One of the scariest aspects of disability is the fear that when you reach retirement age, you'll stop getting benefits. Some private insurance is structured that way, with the idea being that disability is supposed to replace work income, and after you reach retirement age, you wouldn't typically work any longer. Moreover, many fear that retirement benefits for a disabled person will be much lower because of their shortened work histories.

But Social Security disability accounts for those problems. Retirement benefits automatically replace disability benefits at full retirement age, but Social Security ignores the usual work history rules and instead simply continues paying the same amount it did under disability. Therefore, most people don't need to worry about a benefit cut when they retire.

Because of its disability benefits, Social Security is even more valuable than many people realize. Being aware of all your potential Social Security benefits will leave you better able to claim them when you need them.

You can follow Motley Fool contributorDan Caplingeron Twitter@DanCaplingeror onGoogle Plus. Motley Fool retirement experts have created a free report on a simple strategy totake advantage of a little-known IRS rule to boost your retirement income.

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