4 Things Everyone Must Know About Social Security Disability

Young woman sitting on a wheelchair. iStockalypse 2012 in Berlin.
Getty Images
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

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.

7 Best Places to Retire Worldwide If You're OK Going Full Expat
See Gallery
4 Things Everyone Must Know About Social Security Disability

Medellin has a notorious reputation among Americans who know it mostly for its drug-laden past, but that hasn't prevented a huge expat population from springing up within city limits. Medellin is an incredibly walkable city, and its El Poblado district has Japanese, French, seafood and Italian restaurants within a block of each other.

Its health care system ranks near the top this list, while the cost of everything from housing to entertainment are a great fit for a fixed income. The average rental on a one-bedroom apartment in the center of the city is $650, while the average cost of buying a place is $1,050 per square meter. A taxi will get you anywhere in town for $2.50, while buses and trains can be found for much less. Plus, with the average high temperature topping out at 73 degrees, the average low coming in at 54 and a couple of rainy seasons in spring and fall, it's cool and comfortable.

Four seasons, lots of English speakers, all the Western amenities, entertainment and dining options that couples honeymoon here for ... that socialist universal health care that folks back home kept wailing about. Is there anything Pau doesn't have going for it?

Well, just consider the fact that you still have to pay for it all. The average cost of living here comes in at little more than $1,900 a month. That's not terrible by western standards, but it's more than the $1,530 you'd pay in Medellin. A whole lot of that cost comes from the nearly $1,300-a-month average cost of an apartment, which is roughly double what you'd pay in Colombia. Pau is still one of the most affordable places to live in France and is one of only two European locations on our list. That said, on a global scale it isn't exactly cheap.

It's a bit rainy and the average high temperature is in the 90s, but you're on an island in the Pacific living in one of the cheapest cities an expat can ask for.

Located along a sheltered coast on the island of Negros, Dumaguete avoids many of the typhoons, floods, landslides and tsunamis that plague other areas of the Philippines. The cost of living there comes out to roughly $920 a month, making it one of the cheapest places to live on this list. The real estate values help out quite a bit, as even prime downtown apartments can be had for $350 a month, while real estate goes for roughly $1,200 per square meter.

For that, you live in a beachfront, tropical climate with excellent health care, lots of activities and one of the best residency programs in the world. If you're there, have roughly $800 a month in income and are over 50 years old, you can live there with no required residency period and with a bunch of discounts as a result of residency.

The good news is that you can live really well here on $920 a month. The bad news? You're doing it in a city where the average high temperature is 99 degrees year-round and the average humidity sits at 85 percent.

Oh, and the nearby farmers burn their fields at the end of harvest season, making the air in town practically unbreathable.

That said, hillside Chiang Mai offers a lot for the money. An apartment downtown goes for a ridiculously low $400 a month, while homes can be bought for $1,100 per square meter. The high-quality health care and health-related services are huge bonuses, as are Western amenities and jobs for foreign residents. Many Westerners are employed in Chiang Mai in language schools, universities, medical facilities and tourist-related industries.

The country's Malaysia My Second Home retirement benefits program for all foreigners is a great draw, but so is the quality Internet access, cellphone coverage and roads.

If you can prove $3,125 in monthly income and make an investment in a local CD, you're going to be living on the cheap for the foreseeable future. The average monthly cost of living comes out to $1,070, with apartments renting for just $500 and homes selling for $1,700 a square meter.

George Town's population of 740,000 isn't exactly tiny, but it's small enough so that it's easy to make friends and meet people in a city where English is spoken just about everywhere. The health care is outstanding, the infrastructure is just about Western and the population of expats is around 40,000 -- a city unto itself.

Ecuador is Florida or Arizona for the expat community.

The country's retirement benefits package includes 50% off transportation, utility bills, international round-trip flights originating in Ecuador and tickets for cultural and sporting events. Foreigners can also enroll in the Ecuador Social Security medical program for $57 a month. Those over 65 also pay lower income tax. Oh, and there's no required minimum stay for residency.

At $1,010 in average monthly costs, Cuenca is also insanely cheap. Apartments downtown rent for $300 a month, with homes selling for $1,100 a square foot. Your neighbor is also likely to have a few stories to swap, as there are roughly 4,000 to 5,000 North American expats living in this small city. There are lots of restaurants and nightlife and just enough English spoken to ease the transition.

This Old World region on the Atlantic Ocean, home to more than 100,000 resident expat retirees, medieval towns, fishing villages, open-air markets, local wine and some of Europe's best sandy beaches. Dotted with cobblestoned streets and whitewashed houses with lace-patterned chimneys, surrounded everywhere by fig, olive, almond, and carob trees, it's a European dream location.

It has four seasons, including one of Europe's most sought-after summers, nearly no crime, strong infrastructure and universal, international-standard health care. That said, it isn't exactly overrun with English speakers, so you may want to brush up on some Portuguese before hunting for homes here. Still, with 42 golf courses in less than 100 miles and a cost of living that averages out to between $1,500 and $2,000 a month -- including rent at around $615 a month -- there's a whole lot of motivation to learn the language and stick around a while.

Read Full Story

Find a home

Powered by Zillow