When a person collecting SSDI disability benefits (as opposed to SSI) reaches early retirement age, what should she do? The simplest answer is to remain on disability until reaching full retirement age (FRA.) This is what happens almost all the time. But, are there times when it makes sense to switch from disability to early retirement?
Workers Comp Plus Social Security Disability
One situation where this might be wise is if Social Security is offsetting a person's disability benefits by workers compensation (WC) benefits.
There is an immensely complicated formula for calculating this offset. I have never understood it very well. But, the important thing is that Social Security will reduce disability benefits if a beneficiary is also collecting WC payments. Interestingly, there is no WC offset for retirement benefits. This means that those people below FRA getting both disability and WC benefits could see their Social Security checks increase when the WC offset is gone.
But What About Medicare?
But, the devil is in the details. It is not clear what happens to the beneficiary's Medicare coverage if she switches from
disability to retirement benefits. While Social Security might pay you more each month, it might not make up for the loss of Medicare coverage. For the disabled in particular, access to health insurance is critical.
If a person were to switch from Social Security disability to Social Security retirement, that might result in one of two bad things happening. First, that person might be left with no health insurance at all. Or, that person could shop on Healthcare.gov for health insurance. The cost of insuring a person in her sixties with disabling medical conditions could easily eclipse all the benefits Social Security is paying that person.
Isn't Medicare The Most Important Benefit?
I have many clients over the years tell me that they really wanted Medicare more than anything else. A monthly benefit check would be nice, but secondary to be assured of access to doctors and hospitals. I find real wisdom in that approach.
If you are getting both WC and Social Security benefits and you have guaranteed access to other health insurance, such as through a spouse's job, it makes sense upon during 62 to look into converting to retirement benefits. Otherwise, I think the old cliche about sleep dogs applies here.