What you should know about Social Security childhood disability benefits
Editor’s Note: Boston University economist Larry Kotlikoff has spent every week, for over three years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.
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Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February before the changes from the Bipartisan Budget Act of 2015 went into effect.
Social Security expert Larry Kotlikoff has been keeping readers updated on how the budget act changes a number of Social Security rules. We’ll continue publishing updates on what this new law means for your Social Security benefits. Stay tuned.
John and Karen: We went to Social Security on Dec. 21 with the full intention of simply confirming that I would be receiving 50 percent of John’s Social Security the month I turn 66. We were informed by the person with whom we met that that can’t happen until three months before my 66th birthday, so we prepared to end our meeting at that point, noting that we’d come back in February 2017 to accomplish that task.
At that point, we learned that the person with whom we were meeting, Hannah, was a Social Security Disability Insurance specialist. (The person we met with at our previous meeting, who admitted to us that she was an Supplemental Security Income specialist and knew little about Social Security Disability Insurance had arranged her to meet with us.)
Hannah informed us that she had studied our son Karl’s information and proceeded to cheerfully offer to resubmit Karl’s Social Security Disability Insurance application in an attempt to roll back its start date to before he turned 22. She claimed that this was possible because he was born with a genetic syndrome, rendering him, in effect, disabled at birth. She claimed that all she needed was 1) documentation from a medical professional that he has a genetic syndrome; 2) a certified copy of our guardianship; and 3) monthly payroll sheets for Karl from March 2013 to the present.
We were stunned.
She reported that Karl had undergone six of the required 16 “pay trial” reviews and that the most recent one was done in March 2013. She claimed that, at each trial, he was below the magic number of $780 per month.
It was her turn to be stunned when we told her to do nothing quite yet, requesting that we have some time to review our decision and seek counsel with our financial planner. She truly couldn’t understand our hesitation. We asked her many different ways if the resubmission could affect Karl’s Social Security Disability Insurance in any way. She claimed that it would not. She said that it would either be approved or not and that if the latter were the case, he would simply continue receiving the same benefits. She agreed strongly with us that Medicaid should never be an option for Karl and that the benefits of Social Security Disability Insurance far outweighed Supplemental Security Income (he can have assets and Medicare).
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She claimed that rolling back the date to before he turned 22 would make it possible for him be classified as a “disabled child.” Karl would be able to immediately collect the additional money, which would bring him to 50 percent of John’s Social Security (from about $700 to $1,050), and at the time of John’s demise, it would bring him to a monthly Social Security Disability Insurance amount of 75 percent of John’s Social Security, which would be a monthly amount of $1,500 for the rest of Karl’s life.
John began to gather the payroll information. He freaked a bit when he discovered that, during the period of time from March 2013 to present, there were two months when Karl earned more than the magic number of $1,090. (Yes, we are confused about the two different magic numbers — $780 and $1,090). My big concern is that any action we take will make it possible for the Social Security person to see that Karl earned over $1,090 two different months in 2015, as a result of a combination of three pay periods in a month and profit sharing, although one month he was over roughly $100. Will this cause huge problems? Most months he is well below and well under $12,000 per year.
Our financial planner’s big area of concern is John bumping into his Social Security maximum with Karen going on John’s Social Security when she turns 66 and Karl being on it.
Lastly, does Hannah at Social Security seem to be correct on this stuff? We don’t really understand what the trial periods and the $780 per month has to do with the whole deal, but I can tell you that Karl has earned less than $780 per month about half of the months between March 2013 and the present times.
Larry Kotlikoff: I’ve asked former Social Security technical expert Jerry Lutz to weigh in.
Jerry Lutz: It’s much easier to answer questions when you have all of the facts. Unfortunately, that’s not the case here.
I’m guessing John is currently entitled with a primary insurance amount of around $2,000. If he has a disabled child, I would certainly think they’d want him to apply for disabled child’s benefits. If he qualifies, it’s essentially a lifetime benefit.
The $780 figure is the trial work month amount for 2015 and is basically irrelevant. If Karl is approved for childhood disability benefits, then the Social Security Administration will start tracking trial work months, but that’s still irrelevant, unless he subsequently starts earning more than the substantial gainful activity limit. If Karl is already receiving Disability Insurance Benefits based on his own earnings, the Social Security Administration would be tracking his trial work months for that, but he would continue to be entitled as long as his average monthly earnings remain below the substantial gainful activity limit.
The $1,090 number is the monthly substantial gainful activity figure for 2015, and the fact that Karl was over that amount in two months due to getting three paychecks in one month and profit sharing in another month will not disqualify him. As we’ve discussed, earnings are averaged for substantial gainful activity purposes, usually on a calendar year basis, and since Karl earned less than $12,000 in 2015, his average monthly earnings were well below the $1,090 figure. I assume that’s true of 2013 and 2014 as well, but we don’t have that information. I’m also assuming that Karl turned 22 in 2013, since that’s the first point in time that the Social Security Administration is requesting proof of his earnings.
It’s true that Karl’s childhood disability benefits entitlement could cause Karen to receive a lower benefit due to the family maximum, but the family would receive more in total. Also, if and when Karen becomes eligible for retirement benefits on her own account, Karl will likely qualify for childhood disability benefits on her account as well, at which point, Karen’s and John’s family maximums can be combined, and everyone will likely get their full benefits. Furthermore, one of the questions on the Social Security Administration application for retirement benefits is whether or not you have any disabled children. I’m sure they wouldn’t prosecute you for failing to disclose that you have a disabled child, but it’s not really proper to answer ‘no’ if you do in fact have a disabled child.
Obviously, all of this is difficult to explain to someone even when you have all of the facts. It certainly sounds like the Social Security Administration workers are on the right track in this case, and I would encourage this family to follow their advice. If Karl doesn’t file now, it could keep him from ever qualifying for childhood disability benefits, which would probably be around $1,500 per month (plus future cost-of-living-adjustments) when John dies. If, for example, Karl starts earning more than the substantial gainful activity level in the future, it would then be too late to apply for childhood disability benefits. On the other hand, if entitlement is already established and he subsequently earns more than the substantial gainful activity level, he can still qualify to have his benefits reinstated if and when his earnings drop below substantial gainful activity level.
The bottom line: It sounds like a no brainer that Karl should apply ASAP, even if it causes Karen to at least temporarily receive a lower spousal benefit.
John: So we went to Social Security yesterday and all seemed to go smoothly. It took a long time, including a trip to the county offices for a certified birth certificate for Karl. The Social Security lady appears to have changed his date of disability to birth and not when we applied him for benefits, which as I recall would officially allow him to collect on me. Hopefully, there will be nothing but good news now!
Michael: I bought and read your book and follow your articles (they are great, thank you very much). I have a few questions about filing for Social Security benefits under the new law. I have not seen them addressed nor has the Social Security Administration been able to answer them (I called a few times).
I am turning 66 now, and my wife is turning 63. My benefit is $2,400 a month at 66, and my wife’s is only $500. In order to not waste her benefit, I would like her to retire now and get a reduced benefit of $400, and I would file a restricted application to get $250 a month spousal benefit. Can I then also suspend my own benefit in April (the last date to be grandfathered in), so that she could file a restricted application for a spousal benefit (and get the excess of half of mine, or $1,200,) when she turns age 66? Assuming that I can, would my suspension cut off the $250 spousal benefit that I would already be receiving?
Larry Kotlikoff: I believe you can do what you suggest, but I don’t think it is necessarily 100 percent optimal. If your wife files for her retirement benefit now (before you file and suspend for your retirement benefit), she will get a permanently reduced retirement benefit plus an unreduced excess spousal benefit when she files for her spousal benefit at 66. Her total benefit will then be somewhat lower than if she simply to waited till 66 to file for her spousal benefit.
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On the other hand, you can collect a full spousal benefit on her work record up until the point that you file and suspend, which you need to do by April 29 (in order for your wife to file for a spousal benefit at 66) while you are only 69 and still waiting until 70 to restart your retirement benefit.
Why do I say “up until the point?” When you file and suspend, your full spousal benefit will revert to an excess spousal benefit, which will be zero in your case.
I don’t think your strategy is necessarily optimal. However, it all depends on your maximum ages of life.
Linda: I purchased your ESPlanner program. I am confused by the articles I have read and your notice regarding the new changes with Social Security “file and suspend” rules. Please review our brief scenario below and comment:
- I filed for my Social Security benefits when I turned 66 (in January 2015).
- My husband turned 65 in December 2015.
- Following the ESPlanner program, we decided to have my husband file and suspend when he turns 66 in December 2016 and file for spousal benefits (half of my Social Security benefits). He will file for his own Social Security benefits when he turns 70.
Will this plan be possible given the new changes in Social Security? Please let me know.
Larry Kotlikoff: DO NOT have your husband file and suspend. Have him file for just his spousal benefit when he reaches 66. You two were grandfathered in, but having him file and suspend will truly screw you. If your husband did file and suspend when he turns 66, he would get his excess spousal, not his full spousal benefit, and his excess spousal benefit would likely be zero.