Coping With Major Illness

A major illness can bring about life altering circumstances. These guides will better prepare you for the financial implications of such an event.

Financial Guides

Many people are concerned about the cost of long-term care for themselves or for a family member. As the result of a prolonged illness, disability, or injury, older individuals may need long-term care when they can no longer do the ordinary tasks of everyday living or when their health requires constant day-to-day monitoring. Here are the facts you need to decide whether to purchase long-term care insurance and to choose the most cost-effective method of providing for the possibility of long-term care.

By 2020, 12 million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70 percent of the elderly. A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.

Medicare only pays for medically necessary skilled nursing facility or home health care and you must meet certain conditions in order for it to do so. For the majority of Americans, Medicare does not pay for custodial or long-term care, which is defined as assisting with daily living skills such as dressing, bathing, and using the bathroom. Therefore, you may want to think about how you would cover the cost of nursing home care for yourself, your spouse or family members.

Note: Slightly less than half of all nursing home expenses are paid for by Medicaid. And only about two percent of stays in nursing facilities are paid for by Medicare or by private health insurance. Even less assistance is available to meet the cost of care at home or in the community.

One way of covering these often burdensome nursing home costs is long-term care insurance (LTCI). Long-Term Care Insurance is private insurance that you can buy to cover long-term care. Benefits and costs of these plans vary widely.

This Financial Guide covers the factors you will need to think about if you are considering purchasing LTCI and offers help in selecting a policy if you decide to buy LTCI coverage.

How LTCI Works

Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy. Most long-term care policies are indemnity-type policies, meaning they will pay you for actual charges by the care provider (up to the policy’s limits). Other long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insurers greater flexibility (e.g., allowing them to pay for home care) and less paperwork. You also need to keep in mind that it’s necessary to plan ahead and sign up for long-term care insurance before you need it because the older the individual covered, the higher the premium is.

When are Benefits Paid?

To receive benefits, you must usually suffer serious cognitive impairment or be unable to perform several “activities of daily living” independently. Long-term care insurance covers activities of daily living (ADLs) without assistance, such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Individual policies define “unable to perform” for each ADL.

Period of Payment

The benefit period you choose can range from one year to life; the longer the period, the higher the premium will be.

Tip: About 10 percent of the people who enter a nursing home will stay there five years or more. Purchase at least three to five years of coverage, the average length of a nursing home stay.

Types of Care Covered

Most policies cover skilled care, intermediate care, and custodial care at a nursing facility. Home care may also be covered or offered as an extra. You may also be able to purchase coverage for adult day care, assisted living facilities or hospices. Most, but not all, long-term care policies can help cover costs incurred during a nursing home stay, assisted living residency, in-home care, informal care, custodial care, Alzheimer’s facilities, and respite and hospice care.

Elimination Period

This period constitutes the number of days the insured must wait after becoming eligible for benefits before coverage actually begins. The elimination period generally ranges from zero to 90 days, but can go up to one year; the longer the elimination period, the lower the premium is. During the waiting period, you must pay all of the expenses related to your care.

Renewability

Most policies are guaranteed to be renewable. However, rates are generally not guaranteed, and can be raised for a class of policyholders with the approval of the state insurance commission.

Rising Health Care Costs

A fixed-benefit policy will lose much of its protective ability over the course of 10-20 years. Thus, if you purchase a policy at age 60 and expect to rely on it for 20 years, you need inflation protection. This is available with most policies in the form of “benefit increase options” of various types. Benefit Increase Options are also known as automatic benefit increase option, automatic increase benefit, and cost of living adjustment benefit. They provide for annual increases in the benefit amount to offset the effects of inflation and are paid for at the time the policy is issued.

Why Purchase LTCI

Here are the reasons most often given by insured for purchasing LTCI:

  • To avoid being a burden to their families
  • To conserve assets for heirs
  • To be able to get into the nursing home of their choice
  • To be cared for at home as long as possible
  • To preserve quality of life
  • To have peace of mind

LTCI may not be the best way to achieve these goals. There are alternatives to obtaining LTCI that are more suitable for certain people.

The Pros and Cons

Long-term care insurance is both complex and controversial. Today, experts are suggesting that long-term care insurance may not be right for everyone, for instance, people whose net worth is $250,000 to $300,000 (excluding their home) might want to skip LTCI. The choice is yours, however, so here is a summary of some of the main points for and against purchasing such coverage.

Reasons for Buying LTCI

  • LTCI, although expensive, may provide protection against costly care. Thus, if other options are not viable, LTCI may be the way to meet your goals. Although LTCI policies remain a low-value product, they are better than nothing.
  • If you have family caregivers, the extra home care coverage in LTCI might make it possible to remain at home longer.
  • LTCI premium costs increase with age. Once you develop a serious medical condition, you probably will not qualify for coverage. Thus, it is better to buy LTCI early, if at all.

Reasons against Buying LTCI

  • You cannot afford the premiums or don’t have enough assets to protect. The National Association of Insurance Commissioners recommends spending only 5 percent of your income on an LTCI policy.
  • LTCI policies lack sufficient home care coverage to keep an individual out of a nursing home unless family members or informal caregivers are available to help in providing care. Thus, if your goal is to avoid nursing homes at all costs, LTCI may not be the best way to go.
  • LTCI policies return from 60 percent to 65 percent of total premiums paid in benefits. This return rate is much less than returns from other types of health insurance.
  • Those with assets over $2 million are better off going the self-insure route or simply paying costs as they come up.

Tip: Refuse to pay more than one month’s premium when you apply for coverage. In most states, after you buy a policy, you have 30 days to change your mind and get a refund.

Other Alternatives

Here are some options for paying for long-term care, along with their advantages and drawbacks:

Transferring Assets

Giving away assets to qualify for Medicaid may make sense for some people who want to leave their heirs an inheritance. The downside of giving away assets is that there is less flexibility and fewer resources to pay for care.

The Medicaid program provides coverage for long-term care services for individuals who are unable to afford it. In the past, some people gave away their assets to qualify for Medicaid and make sure their heirs received an inheritance; however, the passage of the Deficit Reduction Act of 2005 introduced new rules that discourage the improper transfer of assets to gain Medicaid eligibility and receive long-term care services.

As such, for anyone who transferred assets in order to become eligible for Medicaid, there is a period of ineligibility depending on date of transfer. For individuals transferring assets before February 8, 2006, state Medicaid officials only look at transfers made within the 36 months prior to the Medicaid application (60 months if the transfer was made to or from certain kinds of trusts). For anyone who transferred assets after February 8, 2006, date, the period is 60 months.

In addition, assets transferred, sold, or gifted for less than they are worth by individuals in long-term care facilities or receiving home and community-based waiver services, by their spouses, or by someone else acting on their behalf are prohibited for purposes of establishing Medicaid eligibility. This is referred to as transfers of assets for less than fair market value.

So called “Medicaid trusts” are another option. However, recent changes in federal law make it more difficult to have a trust and still qualify for Medicaid. Recent policy states the following:

Where an individual, his or her spouse, or anyone acting on the individual’s behalf, establishes a trust using, at least, some of the individual’s funds, that trust can be considered available to the individual for purposes of determining eligibility for Medicaid.

Certain trusts are not counted as being available to the individual. They include the following:

    • • Trusts established by a parent, grandparent, guardian, or court for the benefit of an individual who is disabled and under the age of 65, using the individual’s own funds.

    • Trusts established by a disabled individual, parent, grandparent, guardian, or court for the disabled individual, using the individual’s own funds, where the trust is made up of pooled funds and managed by a non-profit organization for the sole benefit of each individual included in the trust.

  • Trusts composed only of pension, Social Security, and other income of the individual, in states which make individuals eligible for institutional care under a special income level, but do not cover institutional care for the medically needy.

In all of the above instances, the trust must provide that the state receives any funds, up to the amount of Medicaid benefits paid on behalf of the individual, remaining in the trust when the individual dies.

A trust will not be counted as available to the individual where the State determines that counting the trust would work an undue hardship.

Reverse Mortgage or Equity Conversion

Reverse mortgages and other forms of home equity conversion are often viable alternatives for those who wish to remain at home. Seniors can borrow money against the equity in their homes and defer repayment until they die or sell their house. However, for these options to make sense, a home must have a high monetary value and be fully or mostly paid for. Moreover, the individual must intend to stay in the home for the long-term.

Other Sources of Income

Developing other income sources is an option that many older persons overlook. If you are retired, you might want to get a part-time job. If you are currently working, you might work a few years longer than you had planned. You might consider either renting part of your home or selling your current home in order to invest the proceeds.

Self-Insurance

Even though self-insurance–paying for costs yourself if they arise–is a gamble even though it is the current strategy of choice for most people. Self-insurance makes the most sense for people with major assets ($2 million or more), for those who can afford a long nursing home stay, and for people of modest means (under $300,000) who would quickly qualify for Medicaid anyway.

Can You Afford LTCI?

Premiums for LTCI vary greatly, depending on your age at the time of purchase, the comprehensiveness of the coverage, and the company selling the plan.

According to a 2015 report published by the American Association for Long-Term Care Insurance, a 60-year-old married couple would pay $2,170-per-year combined for a total of $328,000 of long-term care insurance coverage.

A 55-year-old single male purchasing new long-term care insurance protection can expect to pay $1,060-per-year for $164,000 of benefits according to the industry report.

A 55-year-old single woman would pay an average of $1,390-per-year for the same level of benefits available to a single man for $1,060.

Here are some general guidelines that suggest buying LTCI:

  • Your net worth is more than $250,000 to $300,000 (not counting the value of the primary residence)
  • You can pay premiums without having to “go without”
  • You could continue to afford the premiums, even if they increased by 20 or 30 percent in the future.

Tip: Long-term care premiums are tax deductible. For example, if you are between 60 and 70 years of age in 2016, you can deduct up to $3,900 (up to $3,800 in 2015).

How to Select an Insurer

If you decide that LTCI is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area while others have not. Do not assume that a company is a safe bet just because it is licensed by the state insurance department to sell LTCI.

Tip: Seek independent advice from your financial advisor before buying. Use a local independent agent or broker who has been recommended by someone reliable. Do not buy from an agent who sells door-to-door.

No matter how good a policy sounds, it is worth little if the company won’t be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company’s rating by A.M. Best or Standard and Poor’s, both of which evaluate the financial health of insurance companies.

Tip: Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor’s. Most public libraries have these references.

What to Look for in a Policy

Read the policy from cover to cover. Do not rely on marketing literature. When you compare LTCI policies, consider the following features:

Flexibility

A policy that covers nursing homes should also cover assisted living, a better alternative for many people who can no longer live on their own. If you want a policy with home care, look for one that offers a full range of community-based services, including adult day care, or that pays you a monthly cash allowance to spend as you please for care.

Tip: If you lack family caregivers you can count on far into the future, avoid buying a policy with home care coverage-it will not be sufficient to enable you to stay at home.

Eligibility

Look for a policy that bases eligibility on the need for help with activities of daily living. Policies that pay only for medically necessary care are not usually a good buy.

Tip: To be sure you are covered for Alzheimer’s disease, choose a policy that covers cognitive as well as physical disability and pays benefits if you meet either criterion.

Inflation

If you purchase a policy before the age of 75, inflation protection is essential to ensure adequate coverage if you need long-term care at some point in the future.

Tip: Buy a policy that has an additional cost but automatically increases benefits at the rate of 5 percent annually.

If you cannot afford inflation protection, either choose a less comprehensive policy or do not buy LTCI at all.

Duration

Keep in mind that the chances of needing long-term care for five years or longer are relatively small. For most people, a policy covering two or three years will be more cost-effective.

Tip: Resist pressure to buy the first policy you see. Compare it with at least two others.

Do you have enough disability insurance coverage? If you need to purchase private coverage, how can you get the most for your money? Have you neglected to protect what could be your most important financial asset? For many individuals, this is not the home or portfolio- it’s earning power. This Financial Guide provides you with information to assist you in determining how much disability insurance you should have.

Even if your employer provides you with disability coverage, it’s vital to examine the terms and conditions of that coverage, since it may not provide you with adequate coverage to meet your needs.

If you couldn’t work, how long could you continue to pay your bills? Chances are, whatever employer-provided and government-provided coverage you have is inadequate, and you need to provide yourself with private disability coverage. Here are guidelines designed to ensure that you are adequately covered.

Planning For The Worst-Case Scenario

Many of us have life insurance, however very few of us have long-term disability coverage. Yet according to statistics, workers are more likely to sustain a long-term disability (one lasting longer than 90 days) than die at an early age. Long-term disability insurance is fairly expensive, and people tend to think that they will be protected by workers’ compensation or other sources. However, Social Security, workers’ compensation, and employer-offered long-term coverage are often inadequate.

Note: We’ll show you how to check up on the adequacy of various sources of coverage in this Guide

Here’s a typical disability scenario- one that could happen to anyone.

Example: Roger Roe, a former executive for a large company and currently self-employed as a consultant, earns $200,000 per year. Last year, his osteoarthritis suddenly became much worse, and he could no longer bend his back, lift anything, or stand in one place for longer than a few minutes. Roger was forced to discontinue his consulting business, and attempted various career changes, none of which panned out. Fortunately for Roger, he had taken out a disability policy years ago and had continued paying the $2,000 per year premiums. The policy will now pay him $20,000 per year in benefits–a badly needed income.

Checking Up On What You Have

Here are some suggestions for investigating the disability coverage you may already have, in order to find out whether it is adequate to meet your needs.

Employer-Provided Coverage

If your employer provides long-term disability coverage, which must usually be paid for by the employee, then it’s a good idea to buy it. The premiums are probably discounted from what you’d pay for a private policy.

However, take a good look at what the employer-offered policy covers, and buy a private policy if you decide you need it. Many employer-provided group policies are inadequate in that they limit either the term of the coverage or the amount of benefits paid. For instance, benefits may last only a few years, or benefit payments may represent only a small part of executive salaries.

Check up on the following:

  • How long does the disability coverage last?
  • How much is the benefit?

Note: Group plans may have a benefit cap of $5,000 per month. Individual plans may also have such a cap.

  • What percentage of your income are you covered for?

Note: Generally, you cannot obtain insurance for more than 60 percent of your income.

  • Who pays the premiums?

Tip: Tax-wise, you’re better off paying the premiums yourself, instead of having your employer pay them. Why? Because if you pay the premium for your disability benefits using after-tax dollars, your disability benefits are tax-free. On the other hand, if your employer pays the premiums using pre-tax dollars your disability benefits are taxable.

  • If you receive bonuses or commissions, are these covered by the group policy? If not, and if bonuses or commissions make up a substantial part of your income, you’ll probably need supplemental coverage.
  • What is the definition of disability in the group policy? Own-occupation, any occupation, or income-replacement? (Please see the discussion of these three terms in the section on private policies.)

Governmental Coverage

Worker’s compensation covers injuries that happen on the job and the amount of benefits you receive are based on your average salary at the time of your injury. Benefits vary widely from state to state since benefit amounts depend on state provisions. The average weekly maximum is about $1,035 while the average weekly minimum (where there is a minimum) is $190. Most states pay benefits for the employee’s lifetime in cases of permanent total disability.

Tip: To get details on worker’s comp benefits, contact your state’s Department of Labor.

Veterans whose disability is related to a service-related injury may be eligible to receive disability benefits in certain states. If you are a veteran, find out whether a disability fund exists in your state.

Social Security provides long-term disability coverage. However, more than half of the individuals who apply for Social Security disability are denied coverage, and the system leaves many gaps. Further, the average monthly payment in 2016 is $1,166 and may not be adequate for many individuals.

Planning Aid: Standard And Poor’s Insurance Ratings allow you to find S & P ratings and financial strength ratings of various insurance companies.

What To Look For In A Private Policy

If you decide you need supplemental coverage, here are some things to look for in a private policy, as well as some suggestions for getting the most for your money.

Be Ready To Prove Your Income Level

A disability insurance company will usually not cover you for more than 66 2/3 percent of your income. Look for a policy that provides coverage for this level.

When you shop for a disability policy, be ready to prove your income level.

Watch Out For The “Definition Of Disability”

The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.

Own-occupation coverage pays benefits if you can’t work at your chosen field-e.g., attorney or teacher. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage. (If you cannot perform the duties of your own occupation, you can take a job in a related field, make a decent income, and still collect the benefits.)

Any-occupation coverage pays benefits if you can’t work at any occupation for which your education level and training has prepared you. Thus, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.

Income-replacement policies, which are less expensive than own-occupation or any-occupation, replace whatever portion of your income you are no longer able to earn.

Waiting Period

The longer the waiting period before benefits kick in, the less your premium will be. If you have adequate sick leave, short-term disability, and an emergency fund, and can support a longer waiting period, choose a policy with a longer waiting period.

Waiting periods are typically 30 to 90 days long, but can be as long as 26 weeks.

How Long Will Coverage Last?

It’s a good idea to get a benefit period that lasts until the age you start receiving Social Security payments. Be aware that many policies cover you for only two to five years, an inadequate period.

Unless you are so young that you haven’t yet had time to qualify for Social Security, a policy that provides lifetime benefits, at costly premiums, is generally not worth it.

Residual Benefits

If you are able to work only part-time instead of your previous full-time hours, will you receive benefits? Unless your policy states that you are entitled to residual benefits, you won’t receive anything unless you are totally unable to work.

Note: Residual benefits may be added on as a rider in some policies.

Non-Cancelable vs. Guaranteed Renewable

The difference between these two terms is very important. If a policy is “non-cancelable,” you will pay a fixed premium throughout the contract term. Your premium will not go up for the term of the contract. If it is “guaranteed renewable,” your premiums could go up.

Riders and Options

Riders and opitons are additions to policies and cost extra.

Increasing Coverage

An option to increase coverage gives you the ability to buy more coverage without being turned down for health reasons.

You will pay about 10 percent of your premium to have this option.

Cost-Of-Living

The cost-of-living rider, which can add 20 to 40 percent to your premium, pays you increased benefits after you become disabled.

Social Security

If you qualify for Social Security disability, the insurer gets to decrease your coverage.

Tip: Take this rider if it is available. It will save you money on your premium.

Waiver-of-Premium

This important rider allows you to stop paying premiums once you become disabled.

Tip: Weigh the cost of the waiver-of-premium rider against the cost of continuing to pay the premiums after disability.

Return-of-Premium

This is an option that allows you some cash back if you do not collect on your disability coverage after a certain amount of time.

Tip: This rider is too expensive, generally about 50 percent of your premium. Don’t take it.

Check Out Your Insurer

Before buying a policy, check the financial soundness of your insurer. If your insurer goes bankrupt, you may have to shop for a policy later in life, when premiums are more expensive.

Premium-Reducing Tips

  • Try to get disability insurance on a low-load (commission) basis. Look at the policies offered by independent agents, but don’t buy insurance from an insurer that doesn’t check out as financially sound.
  • If you’re young, consider buying an annual renewable disability income policy. This is similar to term life insurance. Then, when you are older and more able to afford the policy, convert to a permanent policy.
  • Try to get group coverage from a trade association or other organization you belong to.
  • If you’re female, look for an insurer that has unisex pricing. Otherwise, women will generally pay higher premiums.
  • Investigate discounts that may be available.

Who is entitled to Social Security disability benefits? How is a “disability” determined? How long do payments continue? What happens when you reach retirement age? This Financial Guide provides information you should know about Social Security disability benefits in the event you or a loved one becomes disabled.

Every family needs to plan for the possibility of a disabling illness that prevents a breadwinner from earning income. Here is a summary of the part that Social Security benefits will play in your disability insurance planning the amount you’re entitled to and the rules that apply. This Guide also informs you of what changes you need to report to Social Security and the easiest ways to report them.

General Information

An individual who is determined by the Social Security Administration to be “disabled” receives an Award Letter, which is a notice of decision that explains how much the disability benefit will be and when payments start. It also tells you when you can expect your condition to be reviewed to see if there has been any improvement

Caution: You never have to pay for information or service at Social Security. Some businesses advertise that they can provide name changes, Social Security cards, or earnings statements for a fee. All these services are provided free by Social Security.

Generally, a worker is entitled to disability if he or she (1) is “insured” for disability (i.e., has accumulated sufficient credits in the Social Security system), (2) is under age 65, (3) has been disabled or is expected to be disabled for at least 12 months, (4) has filed an application for benefits, and (5) has completed a five-month waiting period. In general, to get disability benefits, you must meet two different earnings tests:

  • A “recent work” test based on your age at the time you became disabled; and
  • A “duration of work” test to show that you worked long enough under Social Security.

Certain blind workers have to meet only the “duration of work” test.

Disability is generally defined as the inability to perform substantial gainful activity due to a medical or mental impairment. Social Security pays benefits to people who cannot work because they have a medical condition that is expected to last at least one year or result in death. Federal law requires this very strict definition of disability and meeting this definition under Social Security is difficult.

If you are getting disability benefits on your own work record or on a deceased spouse’s record, your payments cannot begin before the sixth full month of disability. If the sixth month has passed, your first payment may include some back benefits.

Note: Your Social Security disability benefit may be reduced if you are eligible for workers’ compensation, other public disability payments, or a pension from a job where you did not have to pay Social Security taxes (discussed later). You can expect your payment amount to go up in future years. Whenever the cost of living goes up in a year, benefits will be increased by that amount the following January. If there is an increase, then you will get a notice telling you about it.

Caution: If a person claiming to be a Social Security employee visits you to talk about Social Security or SSI, ask for identification. A bona fide Social Security employee will be glad to show you proper identification. If you have any doubts, check with SSA. Remember: Social Security employees will never ask you for money to have something done. It is their job to help you.

Taxation of Benefits

Some people who get Social Security have to pay taxes on their benefits. About one-third of our current beneficiaries pay taxes on their benefits. You will be affected only if you have substantial income in addition to your Social Security benefits. If you file a federal tax return as an “individual” and your combined income is more than $25,000, you have to pay taxes. Combined income is defined as your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you are married and file a separate return, then you will probably pay taxes on your benefits.

Benefit Payments

When to Expect Them

Your check should arrive on the third day of every month. If the third falls on a Saturday, Sunday, or legal holiday, then you will receive your check on the last banking day before that day. The check you receive is the benefit for the previous month. For example, the check you receive dated July 3 is for June.

Form of Payment

Your benefit can either be deposited directly into your bank account or paid through the Direct Express card program. The money is deposited on the second, third, or fourth Wednesday, depending on your day of birth.

Note: The SSA began phasing out paper checks starting in May 2011 and those who began receiving Social Security checks before May of 2011 had until March 1, 2013, to sign up for electronic payments.

Direct Deposit. Direct deposit of your check is safe, reliable, and convenient.

Questions about direct deposit and Direct Express can be answered by your financial institution or any Social Security office.

Direct Express. Direct Express is a pre-paid debit card that does not require a bank account, but still gives you the same advantages of direct deposit.

Tip: It is especially important to tell Social Security about any change in your mailing address when you receive your benefits by direct deposit. If you decide to change the account or the financial institution where your benefits are going, it is important to keep the old account open until the first benefit is received in your new account. It usually takes one or two months to process the change from one bank or account to another.

Duration of Payments

Your disability benefits generally continue for as long as you cannot work and your impairment has not medically improved. They will not necessarily continue indefinitely, however. Because of advances in medical science and rehabilitation techniques, an increasing number of people with disabilities recover from serious accidents and illnesses. Also, many individuals, through determination and effort, overcome serious conditions and return to work in spite of them.

Having a Child After Benefits Start

If you become the parent of a child after you begin receiving Social Security benefits and the child is in your care, be sure to notify SSA so that the child can also receive benefits.

Reaching Retirement Age

If you are still getting disability benefits when you reach full retirement age, your benefits will be automatically changed to retirement benefits, generally in the same amount. You will then receive a new booklet explaining your rights and responsibilities as a retired person. If you are a disabled widow or widower, your benefits will be changed to regular widow or widower benefits (at the same rate) at 60, and you will receive a new instruction booklet that explains the rights and responsibilities for people who get survivors benefits.

Eligibility for Medicare

After you receive disability benefits for 24 months, you will be eligible for Medicare. You will get information about Medicare several months before your coverage starts. If you have permanent kidney failure requiring regular dialysis or a transplant or you have amyotrophic lateral sclerosis (Lou Gehrig’s disease), you may qualify for Medicare almost immediately.

Changes That Can Affect Your Benefits

You should promptly report any changes that may affect your disability benefits. Family members receiving benefits also should report events that might affect their checks. The events that must be reported are explained in this section.

If you work while receiving disability payments

Notify SSA if you take a job or become self-employed, no matter how little you earn. Let them know how many hours you expect to work and when your work starts or stops. If you still are disabled, then you will be eligible for a trial work period, and you can continue receiving benefits for up to nine months. Also, tell SSA if you have any special work expenses because of your disability (such as specialized equipment, a wheelchair or even prescription drugs) or if there is any change in the amount of those expenses.

If you receive other disability benefits

Social Security benefits for you and your family may be reduced if you also are eligible for workers’ compensation (including payments through the black lung program) or for disability benefits from certain federal, state or local government programs. You must tell SSA if:

  • You apply for another type of disability benefit;
  • You receive another disability benefit or a lump-sum settlement; or
  • Your benefits change or stop.

If you are offered services under the Ticket to Work Program

Social Security may send you a Ticket that you can use to obtain services to help you go to work or earn more money. You may take the Ticket to your state vocational rehabilitation agency or to an Employment Network of your choice. Employment Networks are private organizations that have agreed to work with Social Security to provide employment services to beneficiaries with disabilities. Your participation in the Ticket Program is voluntary and the services are provided at no cost to you.

If you move

When you plan to move, give SSA your new address and phone number as soon as you know them. Also, let them know the names of any family members who are getting benefits and are moving with you. Even if you receive your benefits by direct deposit, the social security office must have your correct address so they can send letters and other important information to you. Your benefits will be stopped if they are unable to contact you. You can change your address here. Be sure you also file a change of address with your post office.

If you change direct deposit accounts

If you change financial institutions or open a new account, be sure to say that you want to sign up for direct deposit. You also can change your direct deposit online if you have a personal identification number and a password. Or, SSA can change your direct deposit information over the telephone. Have your new and old bank account numbers handy when you call. It takes about 30-60 days to change this information. Do not close your old account until after you make sure your Social Security benefits are being deposited into the new account.

If you are unable to manage your benefits

Sometimes people are unable to manage their money. When this happens, Social Security should be notified. They can arrange to send benefits to a relative or other person who agrees to use the money to take care of the person for whom the benefits are paid. The person who manages someone else’s benefits is called a “representative payee.”

NOTE: People who have “power of attorney” for someone do not automatically qualify to be the person’s representative payee. For more information, ask Social Security for A Guide For Representative Payees (Publication No. 05-10076).

If you get a pension from work not covered by Social Security

If you start receiving a pension from a job for which you did not pay Social Security taxes-—for example, from the federal civil service system, some state or local pension systems, nonprofit organizations or a foreign government—-your Social Security benefit may be reduced. Also, be sure to notify SSA if the amount of your pension changes.

If you get married or divorced

If you get married or divorced, your Social Security benefits may be affected, depending on the kind of benefits you receive.

If your benefits are stopped because of marriage or remarriage, they may be started again if the marriage ends.

If you change your name

If you change your name, either by marriage, divorce or court order, you need to tell SSA right away. If you do not give them this information, your benefits will be issued under your old name and, if you have direct deposit, payments may not reach your account. If you receive checks, you may not be able to cash them if your identification is different from the name on your check.

If you care for a child who receives benefits

If you receive benefits because you are caring for a disabled worker’s child who is younger than age 16 or disabled, notify SSA right away if the child leaves your care. You must give them the name and address of the person with whom the child is living.

A temporary separation may not affect your benefits if you continue to have parental control over the child, but your benefits will stop if you no longer have responsibility for the child. If the child returns to your care, SSA can start sending your benefits to you again.

Your benefits usually stop when the youngest, unmarried child in your care reaches age 16, unless the child is disabled.

If you become a parent after entitlement

If you become the parent of a child after entitlement (including an adopted child) let SSA know so that they can determine if the child qualifies for benefits.

If a child receiving benefits is adopted

When a child who is receiving benefits is adopted by someone else, let SSA know his or her new name, the date of the adoption decree, and the adopting parent’s name and address. The adoption will not cause the child’s benefits to stop.

If you have an outstanding warrant for your arrest

You must tell SSA if you have an outstanding arrest warrant for any of the following felony offenses:

  • Flight to avoid prosecution or confinement;
  • Escape from custody; and
  • Flight-escape.

You cannot receive regular disability benefits, or any underpayments you may be due for any month in which there is an outstanding arrest warrant for any of these felony offenses.

If you are convicted of a crime

Tell SSA right away if you are convicted of a crime. Regular disability benefits or any underpayments that may be due are not paid for the months a person is confined for a crime, but any family members who are eligible for benefits based on that person’s work may continue to receive benefits.

Monthly benefits or any underpayments that may be due usually are not paid to someone who commits a crime and is confined to an institution by court order and at public expense. This applies if the person has been found:

  • Not guilty by reason of insanity or similar factors (such as mental disease, mental defect or mental incompetence); or
  • Incompetent to stand trial.

If you violate a condition of parole or probation

You must tell SSA if you are violating a condition of your probation or parole imposed under federal or state law. You cannot receive regular disability benefits or any underpayment that may be due for any month in which you violate a condition of your probation or parole.

If you leave the United States

If you are a U.S. citizen, you can travel to or live in most foreign countries without affecting your Social Security benefits. There are, however, a few countries where Social Security payments generally cannot be sent to. These countries are Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam. In addition, U.S. Department of the Treasury regulations prohibit making payments if you are in Cuba or North Korea.

Let SSA know if you plan to go outside the United States for a trip that lasts 30 days or more. Tell SSA the name of the country or countries you plan to visit and the date you expect to leave the United States.

They will send you special reporting instructions and tell you how to arrange for your benefits while you are away. Be sure to notify SSA when you return to the United States.

If you are not a U.S. citizen and you return to live in the United States, you must provide evidence of your non-citizen status in order to continue receiving benefits. If you work outside the United States, different rules apply in determining whether you can get your benefits.

For more information, ask any Social Security office for a copy of Your Payments While You Are Outside The United States (Publication No. 05-10137).

If your citizenship status changes

If you are not a U.S. citizen, let SSA know if you become a U.S. citizen or if your non-citizen status changes. If your immigration status expires, you must give SSA new evidence that shows you continue to be in the United States lawfully.

If a beneficiary dies

Let SSA know if a person receiving Social Security benefits dies. Benefits are not payable for the month of death. That means if the person died at any time in July, for example, the check received in August (which is payment for July) must be returned. If direct deposit is used, also notify the financial institution of the death as soon as possible so it can return any payments received after death.

Family members may be eligible for Social Security Survivors Benefits when a person getting disability benefits dies.

If you are receiving Social Security and Railroad Retirement benefits

If you are receiving both Social Security and Railroad Retirement benefits based on your spouse’s work and your spouse dies, you must tell SSA immediately. You no longer will be eligible to receive both benefits. You will be notified which survivor benefit you will receive.

How to Report a Change

You can report a change by simply calling the Social Security Administration at (800) 772-1213 or visiting any SSA office. You can also visit the Social Security Administration website. If you send a report by mail, be sure to include the following information:

  • Your name, and if different, the name and Social Security claim number of the person on whose account you get benefits
  • Name of person(s) about whom the report is made
  • Your Social Security claim number
  • What new information is being reported
  • Date of the change
  • Your signature, address, phone number, and date

If you are getting benefits on somebody else’s record (a spouse, for example), SSA needs his or her Social Security number as well.

Disability Case Reviews

Under federal law, all disability cases must be reviewed from time to time. This review is to make sure that people receiving benefits are still considered disabled and meet all other requirements. Your benefits generally will continue unless there is strong proof that your condition has medically improved and there is evidence that you are able to return to work.

Frequency of Reviews

How often your case is reviewed depends on the severity of your condition and the likelihood of improvement. The frequency can range from six months to seven years. Your Certificate of Award states when you can expect your first review. Here are general guidelines for reviews:

  • Improvement expected-If medical improvement can be predicted when benefits start, your first review should be six to 18 months later.
  • Improvement possible-If medical improvement is possible but cannot be predicted, your case will be reviewed about every three years.
  • Improvement not expected-If medical improvement is not likely; your case will be reviewed only about once every five to seven years.

What Happens During a Review

After you get a letter announcing the review, someone from your Social Security office will contact you to explain the review process and your appeal rights. You will be asked to provide information about any medical treatment you have received and any work you might have done. Then your file will be sent to the state agency that makes disability decisions for Social Security. An evaluation team that includes a disability examiner and a doctor will carefully review your file and request your medical reports. If reports are not complete or current enough, you may be asked to have a special examination or test that the government will pay for.

Once a decision is reached, SSA will send you a letter explaining it. If SSA decides you are still disabled, your benefits will continue. If they decide you are no longer disabled, you can file an appeal (see below); otherwise, your benefits will stop three months after SSA determined that your disability ended.

The Ticket to Work Program

Even after you start receiving disability benefits, you may want to try working again. Under this program, Social Security and Supplemental Security Income disability beneficiaries can get help with training and other services they need to go to work at no cost to them. Most beneficiaries will receive a “ticket” that they can take to a provider of their choice who can offer the kind of services they need. To learn more about this program, ask for Your Ticket To Work (Publication No. 05-10061).

Note: For more information about helping you return to work, ask for Working While Disabled-—How We Can Help (Publication No. 05-10095). A guide to all of SSA employment supports can be found in the Red Book, A Summary Guide to Employment Support for Individuals with Disabilities Under the Social Security Disability Insurance and Supplemental Security Income Programs (Publication No. 64-030).

“Substantial” Work

To understand how work affects your disability benefits, you need to understand how Social Security measures your work. Disability benefits can be paid only if you are unable to do any “substantial” work, referred to as “Substantial Gainful Activity” (SGA) by the SSA. The amount of your earnings determines whether your work is substantial. The Substantial Gainful Activity (SGA) amount for persons with disabilities other than blindness is $1,130 per month in 2016. For persons who are blind, the amount of earnings that indicate SGA is $1,820 per month in 2016.

If you are self-employed, your disability is blindness, and you are age 55 or older, special rules apply.

Nine-Month Trial Work Period (TWP)

You can continue to receive benefits for up to nine months while you try to work. The months need not be consecutive, but they must take place within a 60-month period. Generally speaking, a “trial work” month is any month in which you earn over $810 in gross wages for 2016 or spend 80 hours in your own business (regardless of the amount of earnings). You will receive your full benefits during this period as long as you report your activity and remain disabled. If you recover during a trial work period, your benefits will stop after a three-month adjustment period.

At the end of nine months of trial work, SSA will decide if you are able to do “substantial” work. If you can, your benefits will stop after a three-month adjustment period. If you are not able to work, your payments will continue.

36-Month Extended Period of Eligibility (EPE)

If your benefits stop because you have returned to work even though you are still medically disabled, you receive special “benefit protection” for the next 36 months. During that time, you can receive a benefit for any month your earnings fall below $1,130 (SGA amount in 2016). You do not have to file a new application, but you do have to notify Social Security. If you are unable to continue working, your benefits continue indefinitely so long as you remain disabled.

Medicare Continues

If you are working even though you are still disabled, your Medicare coverage may continue for at least 39 months after the trial work period. Beyond that, you may purchase the coverage with a monthly premium.

Help With Work Expenses

If you need certain equipment or services to help you work, the money you pay for them can be deducted from your earnings in deciding whether you are doing “substantial” work. It does not matter if you also need the items or services for daily living (such as a wheelchair).

The cost of medical equipment, certain attendant care services, prostheses, and similar items and services is generally deductible. The cost of drugs or medical services is deductible only if required because of your condition.

Vocational Rehabilitation

When you applied for disability benefits, information about you and your impairment may have been sent to the state vocational rehabilitation agency. If they offer you services and you refuse them without good reason, your monthly benefits may be withheld. If you have not heard from them but are interested in receiving rehabilitation services, you should give them a call.

Your disability benefits will continue while you receive rehabilitation services. Under a special rule, benefits can continue even if you medically recover while participating in an approved vocational rehabilitation or training program.

Benefits for Children and Students

If a child is getting checks on your account, there are several important things you should know about his or her benefits.

When a child reaches age 18, the child’s benefits stop the month before the child reaches age 18 unless the child remains unmarried and is either disabled or is a full-time elementary or secondary school student.

About five months before the child’s 18th birthday, the person receiving the child’s benefits will get a form explaining how benefits can continue.

A child whose benefits stopped at 18 can have them started again if he or she becomes disabled before reaching 22 or becomes a full-time elementary or secondary school student before reaching 19.

If a child is disabled, the child can continue to receive benefits after age 18 if he or she has a disability. The child also may qualify for SSI disability benefits.

If a child at 18 is a student, the child can receive benefits until age 19 if he or she continues to be a full-time elementary or secondary school student. When a student’s 19th birthday occurs during a school term, benefits can be continued up to two months to allow completion of the term.

Social Security should be notified immediately if the student drops out of school, changes from full-time to part-time attendance is expelled or suspended, or changes schools. SSA should also be told if the student is paid by his or her employer for attending school.

SSA sends each student a form at the start and end of the school year. It is important that the form be filled out and returned to SSA. Failure to return the form could result in a suspension of benefits.

A student can keep receiving benefits during a vacation period of four months or less if he or she plans to go back to school full time at the end of the vacation.

A student who stops attending school generally can receive benefits again if he or she returns to school full time before age 19. The student needs to contact Social Security to reapply for benefits.

Benefits for the child of someone getting disability benefits always end if the child marries. The must be reported right away.

Your Right to an Appeal

If you disagree with SSA’s decision, you can appeal it. You have 60 days to file a written appeal by mail or in person with any Social Security office. Generally, there are four levels to the appeals process. They are:

  • Reconsideration. Your claim is reviewed by someone who did not take part in the first decision.
  • Hearing Before an Administrative Law Judge. You can appear before a judge to present your case.
  • Review by Appeals Council. If the Appeals Council decides your case should be reviewed, it will either decide your case or return it to the administrative law judge for further review.
  • Federal District Court. If the Appeals Council decides not to review your case or if you disagree with its decision, you may file a civil lawsuit in a Federal District Court and continue your appeal all the way to the US Supreme Court if necessary.

If you disagree with the decision at one level, you have 60 days to appeal to the next level until you are satisfied with the decision or have completed the last level of appeal.

You have two special appeal rights when a decision is made that you are no longer disabled. They are:

    • Disability Hearing. As part of the reconsideration process, this hearing allows you to meet face-to-face with the person who is reconsidering your case to explain why you feel you are still disabled. You can submit new evidence or information and can bring someone who knows about your disability. This special hearing does not replace your right to also have a formal hearing before an administrative law judge (the second appeal step) if your reconsideration is denied.
  • Continuation of Benefits. While you are appealing your case, you can have your disability benefits and Medicare coverage (if you have it) continue until an administrative law judge makes his or her decision. However, you must request the continuation of your benefits during the first 10 days of the 60 days mentioned earlier. If your appeal is not successful, you may have to repay the benefits.

Decisions about retirement, including understanding your Social Security benefits, are among the most important ones you will ever make. This Financial Guide provides information you need about Social Security benefits to help you plan for your retirement years.

Eligibility for Retirement Benefits

When you work and pay Social Security taxes (referred to as FICA on some pay stubs), you earn Social Security credits. Most people earn a maximum of four credits per year. In 2016, you must earn $1,260 in covered earnings to get one Social Security or Medicare work credit ($5,040 to get the maximum four credits for the year). The number of credits you need to get retirement benefits depends on your date of birth. If you were born in 1929 or later, you need 40 credits (10 years of work). People born before 1929 need fewer than 40 credits (39 credits if born in 1928, 38 credits if born in 1927, etc.).

If you stop working before you have enough credits to qualify for benefits, your credits will remain on your Social Security record. If you return to work, later on, you can then add credits so that you may qualify. No retirement benefits can be paid until you have the required number of credits.

If you are like most people, however, you will earn many more credits than you need to qualify for Social Security. While these extra credits do not increase your Social Security benefit, the income you earn while working will increase your benefit.

Amount of Your Retirement Benefits

Your benefit amount is based on your earnings averaged over most of your working career. Higher lifetime earnings result in higher benefits. If you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your benefit amount is also affected by your age at the time you start receiving benefits. Your benefit will be lower if you start your retirement benefits at age 62 (the earliest possible retirement age) than if you wait until a later age.

Planning Aid: Social Security will give you a personalized benefit estimate at your request. Call 800-772-1213 and ask for a Request for Earnings and Benefit Estimate Statement. Upon completion and return of the form, you will receive a statement of your complete earnings history along with estimates of your benefits for early retirement, full retirement, and delayed retirement (discussed below). You’ll also receive an estimate of the disability benefits you could receive as well as the amount of benefits payable to your spouse and children due to your retirement, disability, or death. If you are age 60 or older, you can get an estimate of your retirement benefits by telephone.

You can also use the Retirement Estimator on the Social Security Administration website.

Note: Your actual benefit amount cannot be determined until you actually apply for benefits.

Social Security law provides for automatic cost-of-living increases. Once you start receiving benefits. The amount will go up automatically as the cost of living rises.

Full Retirement

Persons in the Social Security system who retire at “full retirement age” receive the full retirement benefit. Your full retirement age depends on when you were born.

Because of longer life expectancies, the full retirement age starts at age 65 for those persons born 1937 or earlier and increases gradually until it reaches age 67 for those born 1960 or later. The chart below shows what your full retirement age will be:

Year of Birth

Full Retirement Age

1937 or earlier65
193865 and 2 months
193965 and 4 months
194065 and 6 months
194165 and 8 months
194265 and 10 months
1943-195466
195566 and 2 months
195666 and 4 months
195766 and 6 months
195866 and 8 months
195966 and 10 months
1960 and later67

Early Retirement

You can start your Social Security benefits as early as age 62, but your benefit amount will be less than your full retirement benefit. If you take early retirement, your benefits will be reduced based on the number of months you will receive checks before you reach full retirement age. The reduction is 5/9 of one percent for every month before full retirement age. If your full retirement age is 66 (for example, one born in 1946 and retiring in 2008 at age 62), the reduction for starting your Social Security at 62 is about 27 percent.

Tip: According to the Social Security Administration, you collect more during the first 15 years if you start collecting at 62; beyond the 15 years, you collect more overall by waiting to full retirement age. Of course, the calculation changes where one starting to withdraw at 62 continues working, or returns to work, see below.

Tip: If you are unable to continue working because of poor health, you should consider applying for Social Security disability benefits. The amount of the disability benefit is based on your average lifetime earnings and is stated on your Social Security statement. For more information on disability benefits, request a copy of the booklet Disability Benefits (Publication No. 05-10029).

Delayed Retirement

If you decide to continue working full-time beyond your full retirement age, you will increase your Social Security benefit in two ways:

  • You will be adding a year of earnings to your Social Security record. As stated earlier, higher lifetime earnings result in higher benefits.
  • Your benefit will increase by a certain percentage for each additional year you work. These increases will be added in automatically from the time you reach your full retirement age until you either start taking your benefits or reach age 70. The percentage varies depending on your year of birth. The chart below shows the increase that will apply to you.

 

Year Of Birth

Yearly Rate of Increase

1917-19243%
1925-19263.5%
1927-19284%
1929-19304.5%
1931-19325%
1933-19345.5%
1935-19366%
1937-19386.5%
1939-19407%
1941-19427.5%
1943 or later8%

 

Example: If you were born in 1943 or later, your benefit will increase by 8 percent (2/3 of one percent per month) for each year you delay signing up for Social Security beyond your full retirement age.

Tip: If you decide to delay your retirement, be sure to sign up for Medicare at age 65. In some circumstances, medical insurance costs more if you delay applying for it.

Choosing Your Retirement Date

If you plan to start your retirement benefits at age 62, contact Social Security in advance to determine the best retirement month to claim your benefits. In some cases, your choice of a retirement month could mean additional benefits for you and your family.

Tip: It may be to your advantage to have your Social Security benefits start in January, even if you don’t plan to retire until later in the year. Depending on your earnings and your benefit amount, it may be possible for you to start collecting benefits even though you continue to work. Under current rules, many people can receive the most benefits possible with an application that is effective in January.

If you plan to start collecting your Social Security when you turn 62, you should apply for benefits three months before the date you want your benefits to start. If you are not working your annual earnings fall below the earnings limits (discussed below), or

Tip: Because the rules are complicated, you should discuss your plans with a Social Security claims representative in the year before the year you plan to retire.

Benefits for Widows/Widowers

Many people do not realize that widows and widowers can begin receiving Social Security benefits at age 60 (or age 50 if disabled) on the deceased spouse’s account. If you are receiving widows/widowers (including divorced widows/widowers) benefits, you can switch to your own retirement benefits (assuming you are eligible and your retirement rate is higher than your widow/widower’s rate) as early as age 62.

In many cases, a widow or widower can begin receiving one benefit at a reduced rate and then switch to the other benefit at an unreduced rate at age 65. Since the rules vary depending on the situation, talk to a Social Security representative about the options available to you.

How Work Affects Your Benefits

A Retirement Earnings Test limits the amount of Social Security benefit a person between age 62 and his or her full retirement age (see below) can receive while still working.

For those reaching full retirement age in 2016, $1 in benefits will be deducted for every $3 in earnings above an annual limit up to the month of full retirement age attainment. For 2016, that limit is $41,880. This applies for months before full retirement age. No limit applies beginning the month full retirement age is reached.

For those under full retirement age throughout 2016, $1 in benefits will be deducted for each $2 in earnings above the limit of $15,720 in 2016. These limits generally increase in future years.

If other family members receive benefits on your Social Security record, the total family benefits will be affected by your earnings. Not only will your benefits be offset, but those payable to your family will be offset as well. If a family member works, however, the family member’s earnings affect only his or her benefits.

A special rule applies to your earnings for one year, usually your first year of retirement. Under this rule, you can receive a full Social Security check for any month you are retired, regardless of your yearly earnings. Your earnings must be under a monthly limit. If you are self-employed, the services you perform in your business are taken into consideration as well.

If you earn more than the earnings limit and receive Social Security benefits, you must report this to Social Security. You do not have to fill out a report if you are full retirement age all year.

Your Family’s Benefits

If you are receiving retirement benefits, some members of your family can also receive benefits. Those who can include:

  • Your wife or husband age 62 or older;
  • Your wife or husband under age 62 if she or he is taking care of your child who is under age 16 or disabled;
  • Your former wife or husband age 62 or older (see below);
  • Children up to age 18;
  • Children age 18-19 if they are full-time students through grade 12;
  • Children over age 18, if they are disabled.

The full benefit for a spouse is one-half of the retired worker’s full benefit. However, if your spouse takes benefits between age 62 and their full retirement age, the amount will be permanently reduced by a percentage based on the number of months up to his or her full retirement age, unless she or he is taking care of a child who is under 16 or disabled.

If you are eligible for both your own retirement benefits and for benefits as a spouse, you will be paid your own benefit first. If your benefit as a spouse is higher than your retirement benefit, you will get a combination of benefits equaling the higher spouse benefit.

Example: Mary Ann qualifies for a retirement benefit of $250 and a wife’s benefit of $400. At age 65, she will receive her own $250 retirement benefit and an additional $150 from her wife’s benefit for a total of $400.

A divorced spouse can get benefits on a former husband’s or wife’s Social Security record if the marriage lasted at least 10 years and the divorced spouse is 62 or older and unmarried. For the divorced spouse to get benefits, the worker also must be 62 or older. If divorced for at least two years, the divorced spouse can get benefits even if the worker is not retired. This two-year waiting period is waived if the worker got benefits before the divorce. The amount of benefits a divorced spouse gets has no effect on the amount of benefits a current spouse can get.

If you have children eligible for Social Security, each child will receive up to one-half of your full benefit. However, there is a limit to the amount of money that can be paid to a family. If the total benefits due your spouse and children exceed this limit, their benefits will be reduced proportionately – but your benefit will not be affected.

How to Apply

You can apply for benefits by telephone or by going to any Social Security office. Depending on your circumstances, you will need some or all of these documents:

  • Your Social Security number;
  • Your birth certificate;
  • Your W-2 forms or self-employment tax return for last year;
  • Your checking or savings account information for direct deposit.
  • Your military discharge papers if you had military service;
  • Your spouse’s birth certificate and Social Security number if he or she is applying for benefits;
  • Your children’s birth certificates and Social Security numbers if applying for children’s benefits.

You will need to submit original documents or copies certified by the issuing office. You can mail or take them to Social Security, which will make photocopies and return your documents.

Tip: Don’t delay your application because you don’t have all the information. If you don’t have a document you need, Social Security can help you get it.

Your Right to Appeal

If you disagree with a decision made on your claim, you can appeal it. The steps you can take are explained in the fact sheet, The Appeals Process (Publication No. 05-10141), which is available from Social Security. You have the right to be represented by an attorney or another qualified person of your choice. More information is in the fact sheet, Social Security and Your Right to Representation (Publication No. 05-10075), also available from Social Security.

Taxability of Benefits

Less than one-third of people who get Social Security pay taxes on their benefits. This provision affects only people who have substantial income in addition to their Social Security.

At the end of each year, you will receive a Social Security Benefit Statement (Form SSA-1099) in the mail showing the amount of benefits you received. You can use this statement when you are completing your income tax return to find out if any of your benefits are subject to tax.

Pensions from Work Not Covered by Social Security

If you get a pension from work where you paid Social Security taxes, it will not affect your Social Security benefits. However, your Social Security benefit may be lowered or offset if you get a pension from work that was not covered by Social Security (for example, the Federal civil service or some State or local government employment).

Tip: For more information, call Social Security to ask for the fact sheets, Government Pension (for government workers who may be eligible for Social Security benefits on the record of a husband or wife) (Publication No. 05-10007) and A Pension From Work Not Covered By Social Security (for government workers who also are eligible for their own Social Security benefits) (Publication No. 05-10045).

Leaving the United States

If you are a U.S. citizen, you can travel or live in most foreign countries without affecting your eligibility for Social Security benefits. Your checks can be sent there. However, there are a few countries where Social Security will not send your checks. If you work outside the United States, different rules apply in determining whether you can get your benefit checks.

Most people who are neither U. S. residents nor U.S. citizens will have up to 15 percent of their benefits withheld for federal income tax.

Tip: For more information, ask Social Security for a copy of the booklet Your Payments While You Are Outside the United States (Publication No. 05-10137).

Medicare Insurance

Medicare is a health insurance plan for people who are 65 or older. People who are disabled or have permanent kidney failure can get Medicare at any age. Medicare has four parts:

  • Hospital insurance (Part A), which covers inpatient hospital care and certain follow-up care. You have already paid for it as part of your Social Security taxes while you were working.
  • Medical insurance (Part B), which pays for physicians’ services and some other services not covered by hospital insurance. Medical insurance is optional, and a premium is charged for it.
  • Medicare Part C (also known as Medicare Advantage), which offers health plan options run by Medicare-approved private insurance companies and may cover Medicare prescription drug coverage (Part D).
  • Medicare Part D (Medicare Prescription Drug Coverage), which helps cover the costs of prescription drugs.

Most people are already getting Social Security benefits when they turn 65 and their Medicare starts automatically.

Tip: If you are not getting Social Security, sign up for Medicare close to your 65th birthday, even if you do not plan to retire. For more information, ask Social Security for a copy of the booklet, Medicare (Publication No. 05-10043.)

Frequently Asked Questions

Should I purchase my own disability insurance policy?

Many of us have life insurance, however very few of us have long-term disability coverage. Yet according to statistics, workers are more likely to sustain a long-term disability (one lasting longer than 90 days) than die at an early age.

Long-term disability insurance is fairly expensive, and people tend to think that they will be protected by workers’ compensation or other sources. However, Social Security, workers’ compensation, and employer-offered long-term coverage are often inadequate.

How much disability insurance should I have?

A disability insurance company will usually not cover you for more than 60 percent of your income. Look for a policy that provides coverage for this level. When you shop for a disability policy, be ready to prove your income level. If you purchase the policy and pay the premiums yourself, the income received will not be taxable. Therefore, 60 percent should come close to replacing your after-tax income.

What does workers compensation insurance cover?

Worker’s compensation covers injuries that happen on the job. Benefits vary widely from state to state but typically are equivalent to 66.67 percent of the average weekly wage for the previous 52 weeks. In addition, most states pay benefits for the employee’s lifetime in cases of permanent total disability.

Tip: To get details on worker’s comp benefits, contact your state Department of Labor.

In addition to the requirement that an injury is work-related, the payments you would receive under worker’s comp may be inadequate.

How is disability defined?

The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.

Own-occupation coverage pays benefits if you can’t work in your chosen field–if you are an attorney or teacher, for example. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage. Generally, if you cannot perform the duties of your own occupation, you can take a job in a related field, make a decent income, and still collect the benefits.

Any-occupation coverage pays benefits if you can’t work at any occupation for which your education level and training has prepared you. Therefore, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.

Note: Many policies are own-occupation for a period of years, at which point they convert to any-occupation.

How does long-term care insurance work?

By 2020, 12 million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70 percent of the elderly. A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.

Your chances of needing long-term care vary with your age, health, family history and longevity, exercise habits, diet, smoking, and gender; however, women are often at higher risk simply because they live longer.

Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.

Example: You choose a policy that pays $160 per day for five years. The maximum that policy will pay is $292,000 ($160 per day, times 365 days, times 5 years).

The older the individual covered, the higher the premium is. For instance, premiums for a set amount of coverage on a 70-year-old individual are about three times those that would apply to a 50-year-old.

Most long-term care policies are indemnity-type policies, meaning they will pay (up to the policy’s limits) for actual charges by the care provider. Some long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insureds greater flexibility (e.g., allowing them to pay for home care) and less paperwork.

In a long-term care policy, what is the elimination period?

This period constitutes the number of days the insured must wait after becoming eligible for benefits before coverage actually begins.

The elimination period can range from zero to 90 days, or up to one year. The longer the elimination period, the lower the premium is.

How should I select a long-term care insurance provider?

If you decide that long-term care insurance (LTCI) is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area, while others have not. Do not assume the company is a safe bet just because it is licensed by the state insurance department to sell LTCI.

No matter how good a policy sounds, it is worth little if the company won’t be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company’s rating by A.M. Best or Standard and Poor’s, both of which evaluate the financial health of insurance companies.

Tip: Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor’s. Most public libraries have these references.

When can I qualify for Medicaid insurance?

Eligibility rules vary from state to state, but beneficiaries are generally required to “spend down” their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.

By law, nursing homes cannot discriminate against Medicaid patients, but in reality, many keep “waiting lists” for them while enrolling patients with more income and assets. Medicaid coverage for home care is very limited in most states.

Who is entitled to Social Security disability benefits?

An individual who is determined by the Social Security Administration to be “disabled” receives an Award Letter, which is a notice of decision that explains how much the disability benefit will be and when payments start. It also tells you when you can expect your condition to be reviewed to see if there has been any improvement.

If family members are eligible, they will receive a separate notice and a booklet about things they need to know.

Under the Social Security disability insurance program (title II of the Act), there are three basic categories of individuals who can qualify for benefits on the basis of disability:

  • A disabled insured worker under full retirement age.
  • An individual disabled since childhood (before age 22) who is a dependent of a parent entitled to title II disability or retirement benefits or was a dependent of a deceased insured parent.
  • Disabled widow or widower, age 50-60 if the deceased spouse was insured under Social Security.
  • Been disabled or expected to be disabled for at least 12 months
  • Has filed an application for benefits, and
  • Completed a five month waiting period; however, the 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI. In addition, if you become disabled a second time within five years after your previous disability benefits stopped, there is no waiting period before benefits start.

Under title XVI, or SSI, there are two basic categories under which a financially needy person can get payments based on disability:

  • An adult age 18 or over who is disabled.
  • Child (under age 18) who is disabled.

For all individuals applying for disability benefits under title II, and for adults applying under title XVI, the definition of disability is the same. The law defines disability as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

Meeting this definition under Social Security is difficult. Insured means that you have accumulated sufficient credits in the Social Security system. Visit the Social Security Administration’s Website to apply for an estimate.

When do Social Security disability benefits begin?

If you are getting disability benefits on your own work record, or if you are a widow or widower getting benefits on a spouse’s record, there is a five month waiting period and your payments will not begin until the sixth full month of disability. The 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI.

If the sixth month has passed, your first payment may include some back benefits. Your check should arrive on the third day of every month. If the third falls on a Saturday, Sunday, or legal holiday, then you will receive your check on the last banking day before that day. The check you receive is the benefit for the previous month.

Example: The check you receive dated July 3 is for June. Your benefit can either be mailed to you or be deposited directly into your bank account.

Are Social Security disability benefits taxable?

Some people who get Social Security have to pay taxes on their benefits. The rules are the same regardless as to whether Social Security benefits are received due to retirement or disability. If you file a federal tax return as an “individual” and your combined income is more than $25,000, you have to pay taxes. Combined income is defined as your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you are married and file a separate return, you will probably pay taxes on your benefits. Social Security has no authority to withhold state or local taxes from your benefit. Many states and local authorities do not tax Social Security benefits. However, you should contact your state or local taxing authority for more information.

How long do Social Security disability payments continue?

Your disability benefits generally continue for as long as your impairment has not medically improved and you cannot work. They will not necessarily continue indefinitely, however.

Because of advances in medical science and rehabilitation techniques, an increasing number of people with disabilities recover from serious accidents and illnesses. Also, many individuals, through determination and effort, overcome serious conditions and return to work in spite of them.

What happens to Social Security disability benefits when I reach retirement age?

If you are still getting disability benefits when you reach retirement age, your benefits will be automatically changed to retirement benefits, generally in the same amount. You will then receive a new booklet explaining your rights and responsibilities as a retired person.

If you are a disabled widow or widower, your benefits will be changed to regular widow or widower benefits (at the same rate) at 60, and you will receive a new instruction booklet that explains the rights and responsibilities for people who get survivors benefits.

What happens if Social Security turns down my claim for disability benefits?

If you disagree with SSA’s decision, you can appeal it. You have 60 days to file a written appeal (either by mail or in person) with any Social Security office. Generally, there are four levels to the appeals process. They are:

  • Reconsideration. Your claim is reviewed by someone who did not take part in the first decision.
  • Hearing before an Administrative Law Judge. You can appear before a judge to present your case.
  • Review by Appeals Council. If the Appeals Council decides your case should be reviewed, it will either decide your case or return it to the administrative law judge for further review.
  • Federal District Court. If the Appeals Council decides not to review your case or if you disagree with its decision, you may file a civil lawsuit in a Federal District Court and continue your appeal all the way to the US Supreme Court if necessary.

If you disagree with the decision at one level, you have 60 days to appeal to the next level until you are satisfied with the decision or have completed the last level of appeal.

You have two special appeal rights when a decision is made that you are no longer disabled.

They are as follows:

  • Disability Hearing. As part of the reconsideration process, this hearing allows you to meet face-to-face with the person who is reconsidering your case to explain why you feel you are still disabled. You can submit new evidence or information and can bring someone who knows about your disability. This special hearing does not replace your right to also have a formal hearing before an administrative law judge (the second appeal step) if your reconsideration is denied.
  • Continuation of Benefits. While you are appealing your case, you can have your disability benefits and Medicare coverage (if you have it) continue until an administrative law judge makes his or her decision. However, you must request the continuation of your benefits during the first 10 days of the 60 days mentioned earlier. If your appeal is not successful, you may have to repay the benefits.

Will I receive Social Security when I retire?

Retirement benefit calculations are based on your average earnings during a lifetime of work under the Social Security system. For most current and future retirees, The Social Security Administration (SSA) averages your 35 highest years of earnings. Years in which you have low earnings or no earnings may be counted to bring the total years of earnings up to 35.

You can collect early retirement benefits at age 62, but you currently can’t get full benefits until 65 for persons born in 1937 or earlier. For persons born 1938 and later, the full retirement age increases gradually until it reaches 67 for those born in years 1960 and later. Then you can collect additional benefits for every year you delay your retirement until age 70. After you begin to collect Social Security benefits, you will continue to receive them for life.

How can I find out what Social Security will pay me when I retire?

You can create a my Social Security account with SSA and view your Social Security Statement online at any time.

Can I count on Social Security being around when I retire?

With retirement on the horizon for scores of baby boomers, it’s very likely that Social Security will be in your future; however, the Social Security trust fund will less and less able to pay benefit increases, which increase annually as the taxable wage base rises without some kind of reform.