Few puzzles present more challenges for clients than if their circumstances force them to choose between seeking Social Security benefits based on disability or holding out for delayed retirement payments.

Advisers must be ready to help.

“There are so many variables. It’s important to look at all the numbers,” says Carolyn McClanahan, who has a medical degree and is a CFP and the director of financial planning at Life Planning Partners in Jacksonville, Florida.

The client’s disability and expectations for assets, recovery and birth date must all be taken into account.

“But age matters the most,” McClanahan says.

Younger clients who have disabilities that are likely to qualify them for benefits under Social Security’s strict rules will most probably want to apply for those benefits.

The reason? They face a long period during which way they will receive the disability benefits before retiring.

Therefore, they will earn more in disability benefits than they would in the increased benefits that the Social Security system offers for those who delay benefits until 70.

If the disability is temporary and they return to work before reaching full retirement, Social Security won’t reduce the retirement benefits, and they will preserve their option to delay retirement.

But clients who are approaching Social Security’s full retirement age should be aware that by applying for disability eligibility, they will, when they reach that full retirement age, automatically start receiving retirement benefits and forsake the option to received additional benefits by delaying until they are 70.

“If you’re getting Social Security disability benefits when you reach full retirement age, we convert those benefits to retirement benefits,” according to the Social Security Administration’s guidelines.
“They need to think twice about applying for their disability if they could go back to work,” McClanahan says.

Some clients who have a disability and are approaching the Social Security early retirement age, of 62 may want to pursue a risky and tricky strategy. Under this approach, clients seek early retirement Social Security benefits but, at the same time, apply for eligibility for disability benefits.

If the Social Security Administration deems them eligible for disability benefits, then they will begin to receive disability benefits, rather than early retirement benefits. The advantages of this strategy: Not only will the disability benefit amount often exceed the early retirement benefits but they also won’t face the penalty of reduced benefits for life because of seeking the early retirement benefits.

The risk, however, is that if the Social Security Administration denies their eligibility for disability benefits, they will never have the reduced benefits due to their early retirement for life.

For many advisers, such risk-taking is unadvisable.

“There are certain lawyers who are really good at getting Social Security disability income approved for clients,” says Lynn McIntire, a CFP and registered principal with Raymond James Financial Services and principal of Cadent Capital in Dallas. “But I’m not going to recommend that the they get early Social Security benefits in the hopes that they qualify for Social Security Disability Income.”

This story is part of a 30-30 series on Social Security.

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Miriam Rozen

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas. Follow her on Twitter at @MiriamRozen.