Will Disability Pay More Than Social Security?

By Mike Obel | AUG 30, 2023

If you're eligible for disability benefits, you may be wondering whether taking them or Social Security is the better option. The short answer? It depends on your age. Both disability and Social Security benefits are linked to a person’s full retirement age (FRA), also known as normal retirement age. For workers who are disabled or sick, taking disability benefits before full retirement age will often be more advantageous than claiming Social Security. But after reaching full retirement age, the calculus changes. A financial advisor can be a valuable resource when planning for retirement and finding the right time to claim Social Security.

Disability vs. Social Security

Disability and Social Security benefits are both paid out through the federal government’s Old-Age, Survivors, and Disability Insurance Program run by the Social Security Administration (SSA).  

For the purposes of this article, “disability” will refer to Social Security Disability Insurance (SSDI), a program for people who become sick or injured and cannot work, but have paid into the broader Social Security system for a certain amount of time. “Social Security,” on the other hand, will refer to retirement benefits that workers can start collecting at age 62.

The SSA has strict requirements to qualify for disability benefits. A person is considered disabled under Social Security rules if all three of the following statements apply to their circumstance:

• They cannot perform the work they did before their medical condition
• They cannot adjust to other work because of their medical condition
• Their disability/injury has lasted or is expected to last at least one year or result in death

Meanwhile, Social Security benefits are the monthly payments that one can start receiving at age 62. However, the sooner you start collecting Social Security, the less your benefits will be, at least until reaching full retirement age. 

How Disability and Social Security Benefits Are Calculated

The SSA uses a multi-step process for determining how much a person can collect in disability and Social Security benefits. The formula for calculating either type of benefit is exactly the same right up until the final step. Both require computing a person’s primary insurance amount (PIA), which serves as the basis for benefits paid out to disabled workers and people who have reached full retirement age.  

First, the SSA calculates your average indexed monthly earnings (AIME) using your 35 highest-earning years and indexing them to reflect broader wage growth that has occurred throughout your career. “Such indexation ensures that a worker’s future benefits reflect the general rise in the standard of living that occurred during his or her lifetime,” according to the SSA. However, AIME does not include income that exceeds the annually adjusted cap. The cap for 2023 is $160,200.

The SSA then adds up those 35 years of income and divides the total by 420 (35 years multiplied by 12 months) to determine your AIME. If you have worked more than 35 years, your lowest income years will be excluded. If you have worked fewer than 35 years, the SSA will include a $0 in the calculation for every year you did not work.

Your PIA can now be calculated using your AIME. To do this, the government breaks your AIME into three different sections and takes a percentage of each. The exact amount of these percentages will differ slightly depending on the year you become disabled or turn 62. If you do either in 2023, the SSA will calculate your PIA by taking the following percentages and adding them together:

• 90% of your first $1,115
• 32% of the amount over $1,115 and through $6,171
• 15% of $6,172 and higher

For example, if you determined your AIME to be $6,500, you would calculate your PIA in 2023 by taking 90% of the first $1,115 ($1,003.50), 32% of the next $5,056 ($1,617.92) and 15% of the remaining $398 of your AIME ($49.20) and adding the totals together. Your PIA would be $2,670.60 (the SSA rounds this amount down to the nearest multiple of $0.10).

When Disability Pays More Than Social Security

Once approved for disability, a person’s benefit will be equal to their PIA, regardless of their age. This means if you have not yet reached full retirement age, your Social Security benefit will be less than disability. While you’ll be eligible to receive Social Security benefits at age 62, you won’t receive your PIA until you reach your full retirement age, which will occur sometime between age 66 and 67 (depending on your year of birth). 

Year of Birth	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

If you start collecting Social Security before full retirement age, your benefit will be less than your PIA and will be locked in at that rate for the remainder of your retirement. In fact, if you claim Social Security at age 62, your benefit will be as much as 30% less than if you waited until full retirement age.  

As a result, collecting disability benefits is more advantageous than Social Security if you have not yet reached full retirement age. By opting for disability, you’ll also allow your eventual Social Security benefit to continue to grow after reaching full retirement age. That way you can transition to a larger Social Security benefit when you come off disability.

When Social Security Pays More Than Disability

People who can defer Social Security until they reach full retirement age are eligible to receive their PIA. But those who delay Social Security even longer longer reap even greater rewards. That’s because a person’s Social Security benefit increases 8% for every year they defer Social Security after reaching full retirement age. 

Someone who puts off collecting Social Security until age 70 will receive a benefit that’s 32% more than their PIA. As a result, a person who works beyond their full retirement age and then becomes disabled would be better off simply claiming Social Security. In this situation, their monthly Social Security benefit would be greater than their disability payment. 

Bottom Line

The underlying process for calculating your potential disability and Social Security benefits can seem complicated, but choosing between the two is simple enough if you know your full retirement age. For workers who have not yet reached that age (between 66 and 67), disability benefits will be greater than Social Security. The opposite is true for people who have already eclipsed their full retirement age.  

Tips for Social Security Planning

• A financial advisor can help you determine when is the right time to start collecting Social Security and incorporate those payments into a larger retirement income plan. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• SmartAsset’s Social Security Calculator can help you determine how much your benefit will be based on the age at which you plan to start collecting. Remember, your benefit will increase every month that you defer Social Security beyond full retirement age until 70.

Photo credit: iStock.com/Jelena Stanojkovic, iStock.com/RichVintage