A reader writes in, asking:
“I have a medical condition that would automatically qualify me for Social Security disability benefits. What I am trying to figure out is whether I should file for those benefits now or wait a few years until I’m 62 and file for retirement benefits. Could you explain for readers how disability benefits are calculated?”
The easiest way to get an estimate of your potential disability benefit is to create an account on the SSA.gov website. If you sign in and click over to the “estimated benefits” tab, you can see what your disability benefit would be if you were deemed disabled right now. (You can also see what your retirement benefit would be, given certain assumptions.)
If you’re interested in understanding the actual math though, the short answer is that disability benefits are calculated very similarly to retirement benefits, but with fewer years of earnings history in the calculations.
- Your disability benefit is calculated as if it were a retirement benefit. and as if you were age 62 at the beginning of your 5-month disability waiting period.*
- The “primary insurance amount ” upon which the disability benefit is based is calculated in exactly the same way that it would be for a retirement benefit. That is, it still replaces a percentage of your “average indexed monthly earnings ” [AIME], with a lower percentage being replaced the higher your AIME is.
The primary difference between retirement benefit calculations and disability benefit calculations is that your AIME is calculated differently.
How AIME is Calculated for Disability Benefits
In non-disability cases, your AIME is calculated based on your 35 highest years of (wage-inflation-adjusted) earnings.
With disability benefits, however, the law recognizes that you may not have been able to acquire 35 years of earnings. So an additional calculation must be done to determine how many years will be included in the calculation.
SSA counts the number of years beginning with the year in which you reach age 22 and ending with the year before the year you become disabled. Then they subtract the lesser of:
- One fifth of that total number of years (rounded down), or
- 5 years.
Note that this “beginning with age 22″ business is only with regard to determining how many years they will count, not which years they will count. In other words, if some of your highest-earning years are actually before age 22, those years can be included in the calculation.
Example 1: If you become disabled in the year in which you turn 36, there would be 14 total years between age 22 and the year before the year you become disabled. From that, they subtract the lesser of:
- One fifth of 14 years, rounded down (i.e. 2 years), or
- 5 years.
So the calculation of your disability benefit would be based on your 12 highest years of (wage-inflation-adjusted) earnings.
Example 2: If you become disabled in the year in which you turn 59, there would be 37 total years between age 22 and the year before the year you become disabled. From that, they subtract the lesser of:
- One fifth of 37 years, rounded down (i.e. 7 years), or
- 5 years.
So the calculation of your disability benefit would be based on your 32 highest years of (wage-inflation-adjusted) earnings.
*In order to apply for disability benefits, you must have been disabled for 5 full consecutive months. This “waiting period” begins with the first month in which you were disabled, but no earlier than the 17th month before the month you apply, no matter how long you were disabled before then.
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