Nikki Foley: Matt, we were talking before we started the show about an acquaintance who just recently found out he has cancer. I think if you and I were to talk about other people we know, there are several we can think of who are in their late 40s or early 50s and have been diagnosed with or even passed from cancer or some other disease that has impacted them at a much younger age.

I think that’s appropriate as we talk about our topic today. Social Security—you think of that as your retirement benefit, but there is the disability piece of it. While that probably hasn’t impacted a lot of people, as I think about the stories and the people we know who are running into health situations at a much younger age, maybe this conversation is more appropriate for families and people in our community who don’t really think about Social Security and its role. This might be helpful.

We hope that with our podcast we’re educating people, and we’ve worked really hard recently to make sure we’re giving factual information people can take away so this becomes a resource. I hate to learn of families being impacted by health issues, but I hope this episode can potentially be a resource for our listeners or that they can pass it on to somebody. I think it’s becoming more realistic for young people to potentially have to think about Social Security and Disability. That is our topic today.

We’ve been conducting this six-part series in which we’re breaking Social Security down piece by piece. Social Security really can be one of the most important pieces of a financial plan, but understanding how it works is not always easy.

Matt Bryant: Right. There are a lot of moving parts with it.

Nikki Foley: There are a lot of moving parts with it. We originally started with the basics. Jack and Ellie did a nice job of providing an overview. Then we moved on to worker retirement benefits, and then survivor and dependent benefits. What I want to focus on today is: How does Social Security fit into disability benefits?

How my simple brain thinks about this is: Retirement protects income later in life, survivor benefits protect the family after death, and disability benefits can protect income when someone’s working life is unexpectedly disrupted or interrupted.

Anything to add to that, Matt? If not, I’m going to put you on the spot because I’ve been asking everybody who has been with me the same question. Anything else you want to add to this conversation?

Matt Bryant: Going back to how you opened, unfortunately, we all know too many people who are too young to be dealing with things like this. Saying, “It won’t happen to me,” isn’t necessarily the best way to go about it. We work with a lot of different people, so we see people from all walks. We probably see it more than a lot of people just going about their day-to-day.

Nikki Foley: True.

Matt Bryant: It’s good to understand what your options are. One of the things I get when it comes to Social Security, by and large, is people coming up on their 60s who want to know when to start. On the surface, it seems like a pretty simple exercise. You’re like, “I’m 62. I know what my benefit will be. I’m 67,” whatever your age is.

As soon as you start digging in and peeling back the layers, it gets more and more complicated. There’s the standard rules, and then, like anything, there’s a ton of exceptions. Figuring it out for yourself, if you’re married, if you have family, and your age—it’s very complicated. The Social Security Administration will put out a lot of good information, but they’re not going to provide you guidance.

Nikki Foley: Yeah.

Matt Bryant: You need to know not only how this specific topic is addressed, but how it applies to everything else happening in your life. I think that gets overwhelming at times.

Nikki Foley: That’s a good point you make: How does it fit into the bigger financial plan you have for yourself and your family?

Matt, you’ve been on numerous shows at this point. We’ve introduced you multiple times. Instead of doing a formal introduction and welcoming everybody to Paladin Financial Talk, I want to put you on the spot and ask: What is the number one question you get related to Social Security, and what’s your answer?

Matt Bryant: Just general Social Security? This surprised me, but one of the misconceptions is people thinking that as soon as they retire, they should start it. It makes sense, right? You’re getting rid of a paycheck, so let’s replace it with something. But that’s not always the best situation.

There are too many factors to consider just to say, “Here’s my Social Security statement. That’s the amount I want. Let’s go.” You’ve got to consider so many different options, including what your nest egg looks like, the tax types of your money, longevity, and whether you’re married. There are so many factors that go into it. You get that high-level question, but as soon as you ask a couple of follow-up questions, the answer gets more complicated.

Nikki Foley: Matt, I like that. Your answer was different than the other financial advisors. They all said it almost exactly the same. While you said it, it was, “When should I file?” Every one of them answered, “It depends.” But you gave a lot more meat to that, so I like that.

Matt Bryant: Okay. Good start.

Nikki Foley: Let’s dive into this topic of Social Security disability. We’ll do it in a question-and-answer format, but certainly feel free to take it if there’s an angle you want to look at.

When someone hears Social Security disability, they may assume that an illness or injury is preventing them from doing their current job and that they’ll qualify for Social Security disability insurance. But Social Security has a pretty specific definition of disability. Can you take us through that definition and what it actually takes to qualify?

Matt Bryant: Their definition—the Social Security Administration’s—is fairly restrictive. It’s not simply that you can’t do your current job, the job you may have spent your career doing. The worker must be unable to engage in substantial gainful activity when considering age, education, and work experience.

“Substantial gainful activity” shows up a lot in the information the Social Security Administration puts out. The impairment needs to be supported by medical evidence and expected to last at least 12 months or until death.

There’s also a distinction between Social Security disability and private disability insurance policies. The private policies will often have their own definitions. They’re generally in the same ballpark, but they’ll have their own definition, while Social Security is much more restrictive and pretty well cut and dry. You need to understand the different nuances in the rules if you’re trying to apply.

Nikki Foley: What I heard you say is it’s not about being unable to do your job. It’s about having to demonstrate that you’re unable to perform other substantial work as well.

Matt Bryant: Right.

Nikki Foley: Okay.

Matt Bryant: You can’t just say, “This is my one thing I’ve been trained to do, and I can’t do it, so give me my insurance.” It’s: Can you go out and be productive in some manner?

Nikki Foley: Let’s assume I meet that definition of being disabled. Does that automatically mean I qualify for benefits?

Matt Bryant: No. We’ve got a couple of clients going through this right now. It’s dealing with the government, so it takes time to go through everything and get everything approved. There are actually two work-related tests in addition to meeting the Social Security Administration’s definition of disability: a recent work test and a duration of work test.

Generally speaking, the recent work test requires someone to have earned 20 credits during the last 40 calendar quarters, or 10 years, going back to when the disability began. If you’re a younger worker, the rules are a little different because there’s a good chance you don’t have enough credits in the system. There are some mechanisms in place to try to protect that person.

The second one, the duration of work test, looks at whether the worker has been covered by Social Security long enough. Forty credits, in general, qualifies you for Social Security. Forty credits will establish fully insured status, but going back to younger workers, if you’re 30 or 35, you’ve been paying into the system, but you probably don’t have enough work history. Think sudden illness or maybe a car accident where all of a sudden you can’t do what you’re planning on doing. That’s where some of those exceptions will come in.

Someone could meet the medical definition of disability but not qualify for the worker benefit if they don’t meet enough requirements in the system.

Nikki Foley: Back to where you started: This can be complicated. There are the basic rules as we know them, but then you start getting into those “what ifs.” That’s really where Social Security, if you call them, will give you information, but they will not give you advice. That’s something you had shared, but I wanted to point it out. Here is an example of where it all comes to be when you have unique scenarios going on. You get the information, but then what?

Matt Bryant: Then what? Sometimes it can feel like some of that information may be contradictory. Am I actually in this scenario, or am I disqualified for whatever reason? Getting the information is one thing. Actually interpreting and applying it to your situation—that’s where having an advisor can certainly help.

Nikki Foley: And putting it into the bigger financial picture. That takes us back to a point: When we’re working with younger individuals, often they have never logged into their Social Security account and have no real perspective of what those numbers might look like.

One of the things we often encourage people to do is log in, get your account set up, and then check on an annual basis, maybe when you’re doing your taxes, to make sure the information is accurate. This brings another perspective or another reason to support that. You never know when something is going to happen to you. It would be much better to proactively know that your Social Security account is set up correctly and what it looks like today versus trying to scramble in the event that you have a disability or something where you need to know the information.

Matt Bryant: You should always look up, at least annually, what your benefit is. If nothing else, know that your employment information, like the amount you’re making, matches what you actually made. The last thing you want is to be 67 and going to file for benefits, and they messed up some of your benefits or calculations years ago. That’s going to be tough to get fixed. Just look it over like any other financial statement you get.

Nikki Foley: I do have a client who ran into that situation. He had played hockey, and when he went to file for his Medicare, that was the first time he’d really looked back at all of his numbers. He realized that during a period of time, it wasn’t what he was expecting. Those were high-income earning years for him, so he had to make some decisions on how he wanted to handle that.

Matt, how much does Social Security disability pay, and how long can someone expect that to last?

Matt Bryant: Social Security uses the worker’s earnings history to calculate the amount. The calculation is adjusted because someone who becomes disabled may not have, going back to younger workers, enough time to put enough credits into the system.

There’s also a five-month waiting period. No benefits are paid out for those five months. Let’s think, “I got hurt in January. I’m out of work. I need income.” Social Security is not going to automatically start paying you. You have to go through the whole process to apply, but there’s also a five-month waiting period. The first benefit will be paid in that sixth month after disability onset. It’s not necessarily from when you apply, but going back to when you actually got injured, had an illness, or whatever may have happened.

Going to the Social Security website directly, the five-month waiting period begins on the first full calendar month after the date the Social Security Administration determines your disability officially began. Be mindful of that. It’s not quick cash, right?

Nikki Foley: Right.

Matt Bryant: Going back to general financial planning, every time we talk to a client, it’s, “How much do you have in emergency savings?”

Nikki Foley: Yeah.

Matt Bryant: This is why. If, for whatever reason, you can’t work, you’re not going to start getting payments right off the bat. Even if you have your own private policy, there are typically waiting periods. You need to be mindful of that. Monthly benefits are paid one month behind, so that’s something to be aware of.

There’s no waiting period if your disability is a result of ALS. That’s something that’s changed in the last several years, but it’s good to know. Again, lots of nuance and exceptions depending on the type of illness. Blindness is a different one that has its own rules here and there. Know, “What is my ailment? What am I actually qualified for?” Then know the timing, because a lot of times that money can’t come fast enough.

Benefits aren’t necessarily permanent. They cease after the disability ends, after the person passes away, or the worker reaches full retirement age, and then you’re on your own benefit.

Nikki Foley: As you go through this, I keep going back to how it fits into the overall financial plan. You made reference to a gap of five months, six months, actually almost seven months after something happens. What will you do in that interim?

Emergency savings was one of the things you mentioned. We’ve talked about private disability insurance that might fit in there. This is my favorite saying from Stephen Covey: “Begin with the end in mind.” If this did happen, how can I make sure I plug those holes or fill those gaps as part of my overall financial plan?

That’s actually one of my favorite parts about our holistic planning: getting into this aspect because of the everyday. If you are faced with an emergency, a disability, or a period where the normal is no longer normal, it can be a very stressful situation for you or your family if you don’t have your ducks in a row financially.

Matt Bryant: We talk about that. Let’s say you have a 45-year-old couple, and they have excess cash to invest. Maybe a Roth IRA makes sense. A lot of times we push people there. Of course, there are rules around that. But even opening a non-qualified joint account where we can invest and potentially earn more than what we have in the bank—that money is fully liquid.

If we get through our emergency savings because of job loss or what we’re talking about today, disability, that money is there as a liquid resource for you to say, “My plan was to maybe use it in retirement, but because of this type of account, I have the flexibility to say, ‘I have six months to get by. Where can I reach to grab?’”

We’ve talked in past podcasts about diversifying your tax buckets and all those different things we harp on. This is why: It allows you the flexibility to do those things.

Nikki Foley: Absolutely. Going back to where we started this conversation, take a moment to stop and think about people in your world who have had something happen to them at a much younger age than they were expecting. Your first thought is, “How can I help them?” Meals, getting kids places, whatever their life scenario is. But what’s happening in the background, and the foundation that keeps their household going, is making sure these pieces are in place for them.

Matt, to keep us going, I don’t know if you said this and maybe I missed it, but the disability benefit is equal to 100% of the worker’s PIA, or primary insurance amount. Is that correct?

Matt Bryant: Yes.

Nikki Foley: Just a couple more questions. Does Social Security disability only protect the worker, or are there opportunities for a family to receive benefits as well?

Matt Bryant: The family can potentially receive benefits. Going back to why you want to look up your Social Security statement every year, it has the calculation for what the maximum benefits could be for your family. Like everything with Social Security and government-related matters, there are rules.

Dependent family members may qualify for what are called auxiliary benefits. It’s based on you and your earnings. Looking into this a little further, I don’t have anybody specifically in this situation, but the benefit generally equals half of the disabled worker’s PIA. PIA is the primary insurance amount, which is what you would get at your full retirement age. It may be available to eligible children, a parent caring for an eligible child, spouses, and qualifying divorced spouses age 62.

Again, a lot of nuance and things you have to qualify for, but yes, if you have kids, particularly minor kids, you could qualify for a family benefit. There is a maximum, though, and this is a key part. The rules for disability are more restrictive than the family maximum that pertains to survivor benefits. Depending on the worker’s earnings history, the limit can be quite a bit less and, in some cases, not available at all.

That goes into the planning side of things. Don’t be expecting this money to come in. It may be there for you. It’s more of a safety net, but it may not exist at all.

Nikki Foley: I feel like this is where it gets complicated and very specific to your scenario. If someone becomes disabled, you really need to look at the potential benefit for themselves, but ask about the household so you have a full perspective, not just the disabled worker.

Matt, if Social Security provides disability coverage, does that mean someone doesn’t need private insurance? I teed that up before we had some of our conversation today. Go ahead and cover that one, even though we’ve suggested the answer already in this episode.

Matt Bryant: Like we talked about, they each have their own rules, private versus Social Security. Social Security can be a very important foundation. You’re paying into this system, so you might as well know what your benefit could be. But I don’t think you should think, “Social Security is there if something were to happen to me. I don’t need to worry about coverage in the private space.” That’s not necessarily the case.

One major reason is the actual definition of disability. Social Security uses a very restrictive standard, while those private policies through those carriers might have broader protection, an own-occupation definition versus substantial gainful employment. There may be more flexibility for you there.

I would say Social Security disability is a foundational layer, just like regular Social Security income is a starting point. There are things you should consider to complement it, improve your situation, and reduce your risk, which is what we talk about a lot. It’s not necessarily just relying on SSDI because it’s there.

Nikki Foley: Absolutely. Back to that conversation of the bigger financial picture, short-term disability typically covers your first 90 days of being out of the workforce. That can vary by plan, but in general, about 90 days. Often, that is a number we also suggest for emergency funds, somewhere between three and six months.

Using the same concepts of having an emergency account, think about that same perspective with disability insurance. What do the first 30 days look like? What do the 90 days look like? That six-month mark is where Social Security may kick in. What is your coverage, and how are you going to fill those gaps?

You have provided excellent perspective on this. Our goal is to help our listeners better understand the system and make sure they know there are different benefits. So many people think of retirement benefits when they think Social Security. We’re giving you the tools to be more informed along the way.

Matt Bryant: If you go back to how we start all of our meetings with potential clients, we cover the Paladin Plan. There’s the four pillars, but one of the big things we do is a written plan. The written plan is a long Word document that covers all these different things you need to address.

A lot of the questions are things that even clients don’t know. Does your employer help you with short-term or long-term disability? “I don’t know.” Well, that’s worth doing some homework on. That’s the reason we build that written plan. These aren’t all necessarily the fun topics we want to spend time on, but they’re necessary for an overall financial plan.

We’re going to help you get there. We’re going to prod you to do some of that homework. We’ll even get on the phone with you if necessary. Know what your benefits are, whether it’s through Social Security or the private sector, and make sure you’re prepared if something were to happen.

Nikki Foley: That goes back to something people regularly hear me say on our show: Most of the time, people don’t understand their employer benefits, and they spend somewhere between 13 and 17 minutes on an annual basis looking at those. Stop and make an appointment with yourself at least annually, typically during the annual renewal season. Look at what you have and make sure you understand how it fits into the conversation we’ve had today and this month overall on Social Security.

Matt, as we close our discussion, do you have any recommended resources or anything else you’d like to point out to our listeners?

Matt Bryant: Besides us?

Nikki Foley: That we’re fantastic, or—

Matt Bryant: Reach out to us. It’s good to do your homework. The Social Security Administration puts a lot of good information out there. There are tons of resources they provide. Going back to what we said at the beginning, they’ll give you tons of information on how it works. They’re just not going to give you advice.

You really need to take it a step further and say, “All right, this is good information. I think I know what I want to do, but how does this piece fit in with everything going on in my financial life?” That’s where someone like Paladin comes in to say, “Good research. These are the things you’ve done well, but have you considered these other things for your situation?” Maybe what you’re thinking of doing is the best course of action. Often, though, there’s more nuance to consider.

Resource-wise, do your homework through SSA. They have a ton of good resources. But once you get an answer there, definitely reach out to an advisor.

Nikki Foley: Absolutely. As you do your research, my only other thing to add is read slowly, because it can be complicated. There are synonyms and acronyms. It is not something to fly through. That is the only thing I would say as it relates to any government program: Read slowly.

Matt Bryant: Yes. Once you’ve made your decision, a lot of times it’s very difficult to unwind it. Make sure you’ve dotted your i’s and crossed your t’s.

Nikki Foley: If you want to take the next step, be sure to check out our website. With each episode, as Matt has given you a few resources, we make sure those are available on our website. We’ll make sure the Social Security Administration website link is out there, and anything else Matt might feel is relevant to our conversation today.

Paladinfinancialtalk.com is our website address. That’s where you can review this episode, listen again, and find some of the tools we have mentioned. One of the pieces we’re making available to you as part of our conversation this month is our Social Security Maximization Report.

A template version is available that you can look at and see what we’re talking about, but we will personalize that for you by spending just 15 minutes with us so we can gather the appropriate information. Then we’ll get you that personalized report.

If this is of interest to you, go to paladinfinancialtalk.com and the booking link in the top right corner of the website. That’s where you can book 15 minutes with one of our advisors, and we’ll offer that personalized Social Security Maximization Report to you. The template version is out there now.

If you’re sitting here thinking, “Gosh, I would like to have a conversation about my overall financial plan,” even if it’s not related to a disability conversation, book 15 minutes with us so we can have a no-obligation conversation. Get started so, if nothing else, it’s some information gathering, and you’re putting your foot out there and getting yourself involved with this.

If you’d like to do that, visit paladinfinancialtalk.com and the booking link in the top right corner, or pick up the phone at 651-842-8406.

Follow along with us on social media. We try to make sure we’re giving you real tools you can do something with and educate yourself with. Follow us on YouTube, Facebook, Instagram, and LinkedIn. We look forward to seeing you on another episode of Paladin Financial Talk.