Disability Can Affect Social Security
Question: I am recovering from back surgery, and my doctor says I probably will never return to work. I understand that I may be able to retire on a disability pension that is paid partially by the company I work for and partially by disability payments from the state. These payments would bring me to one-half my salary until I reach the age of 65 (I am now 53). Two questions:
--If I retire on disability are these payments tax-free?
--When I reach the age of 65, am I penalized on my Social Security because I have been drawing disability for 12 years?--G.H.
Answer: Disability gets very, very complicated because you get all sorts of public and private insurers involved and overlapping each other. And also confusing the picture is the question of whether the disability is or is not work related . Reading between the lines, I see nothing to suggest that this is work related, however.
OK, now as to your statement that “these payments would bring me to one-half of my salary until I reach the age of 65.” This is probably true . . . if you say so. I imagine this is information that you got from your employer and that it relates to private disability insurance that your company carries. This is fairly common and is normally wrapped around any benefits you may get from the state and/or Social Security.
Minimum Possibility
State disability itself, according to Barry Elman, manager of the state disability office in Van Nuys, isn’t pegged to any percentage of your salary but ranges from a minimum of $50 a week to a maximum of $224 a week, which is, indeed, based on your salary. It runs out, however, after 52 weeks, and if the disability is permanent, then Social Security enters the picture. But more on this anon.
And yes, this is tax-free (the state’s portion, at least), because you’ve already paid for it through withholding--nine-tenths of 1% of your salary up to your first $21,900 of earnings.
If this disability of yours is work related, other rules apply, according to David Null, area supervisor for the information and assistance bureau of the state’s division of industrial accidents. The same dollar minimum ($50) and maximum ($224) apply and, prior to 1979, there was a five-year maximum before going onto permanent disability. Now, however, there is no maximum time, although the benefits received are still regarded as “temporary disability.”
Currently, the temporary disability payments continue until you either return to work, Null adds, or until you reach what is called either your “maximum point of improvement” or “permanent stationary” status--at which point you go on truly permanent disability.
The subtle difference here is that, under the old system, you might have a back injury taking you out of the work force for more than five years (at which time you went on permanent disability). Let’s say at that point your doctor decides that another operation was called for. You would still remain on permanent disability.
Under the new system, however, the second operation would restart the procedure, and your recovery from that operation would put you back on the higher “temporary disability” benefits.
But enough of this. We aren’t talking about a work-related disability anyway.
Figuring Benefits
Let’s take a look at how Social Security figures into all this, which, rightly, at the age of 53, concerns you most and is reflected in your question, “When I reach the age of 65, am I penalized on my Social Security because I have been drawing disability for 12 years?”
The assumption here is that you plan to wait until age 65 before claiming your Social Security benefits instead of filing for Social Security disability benefits now. According to Dana Edwards of Social Security’s department of external affairs, there is no financial advantage in your waiting--as a matter of fact, it would probably penalize you.
It works this way if you wait until age 65 to take your normal retirement benefits: At that time Uncle Sam would use your 35 years of highest earnings to compute your monthly retirement benefits. And guess what? You’re right--those 12 years of being on state disability would add up to 12 big zeroes in this computation because neither disability nor pension income is reckoned as income--only earned income counts toward Social Security.
So, what happens if you apply for Social Security disability income right now? Well, your benefits will be computed now on the basis of your 26 years of highest earnings (with no zero years). Although there is a mandatory five-month waiting period before you start receiving your Social Security disability checks, Edwards adds, you should apply immediately to start the clock ticking.
Another point to consider is the possibility that in three or four years you might be able to return to work until normal retirement. Those back-to-work years will then, at age 65, offset the three or four years of zero earnings when you were collecting disability. Yes, but wouldn’t the same thing be true if you don’t claim disability now, but decide to wait for normal retirement? Sure, but a zero is a zero whether you are collecting state disability alone, or state disability plus Social Security disability, which you might just as well be doing.
(Just as a point of curiosity, one of the big boons in Social Security disability is the fact that it covers workers of any age, those who are far, far shy of having “26 or 35 years of highest earnings” for computation purposes. As of 1980, the disability benefits for younger workers are figured by taking the difference between the age when the worker reached 22 and the year in which he became disabled and dividing that by five--disregarding fractions--and then subtracting that from the “elapsed” years.
(In other words, let’s say a 30-year-old worker is disabled this year. He was 22 years old in 1978, so we have eight “elapsed years.” You divide that by five, which gives you one, of course, and then subtract that from the elapsed years: eight. And so his disability would be computed on his seven years of highest earnings.)
Eligible for Early Medicare
But in your case the really big reason for claiming Social Security now, Edwards feels, is that by doing so you become eligible for Medicare after 24 months on disability, which is almost 10 years sooner than you will be eligible if you wait until age 65.
There’s one thing you’ll have to keep in mind through all this, Edwards cautions: There is a complicated cap imposed by Social Security on the amount of other disability income that you can collect before your Social Security benefits are reduced to offset part of it.
“In other words,” he says, “you can’t end up getting more disability income from all sources than you were getting on the job.” Ironically, though, the state of California doesn’t take this attitude--any Social Security disability payments being received are ignored in computing the state’s ante.
But there’s no conceivable way of getting down to actual dollars and cents without sitting down with someone in Social Security.
Q: My friends and I have all gotten disgusted with the lottery and aren’t buying tickets any longer because of this obsession with making the grand prize bigger and bigger. Piling all of those millions onto the grand prize has knocked out practically all of the smaller prizes that we all thought, before, we had a chance of winning. No one today knows of anybody winning more than $2 or $5. I think that’s why sales have fallen off, isn’t it?--R.V.
A: It’s possible, although there are so many factors involved that it’s hard to pin the specific reasons down. Ticket sales totaling 3 million to 4 million a day still isn’t too tacky a sales effort, of course.
Every state lottery constantly grapples with this elusive problem of crowd appeal--big-big prize versus scads of medium-size prizes. The whole thing is a jumble of mass psychology, and it’s a fair bet that there are probably fully as many people turned on by the multimillion-dollar grand prize as are turned off by it. (Remember too that when you do get to the Big Spin, the odds between winning $10,000 or $11.2 million aren’t all that far apart).
However, shifting public taste is exactly why each new game is different from the last. Admittedly, the number of lesser prizes has shrunk as the grand prize has soared, but to what extent is hard to pin down. The current game has “more middle-level prizes and options” than the previous one, according to John Schade, assistant director of public affairs for the state Lottery Commission. However, Schade says in reassurance, it also has another gimmick that should have quite a bit of appeal. Big spinners will continue to be drawn from the Entry ticket holders as they are now, but at the same time these drawings are held, there will also be a “second-chance” drawing as well.
Losers who mail three non-winning tickets with one Joker symbol on each to the lottery in a special envelope will be in the “second-chance” drawing. (Pick up a game instruction sheet at your lottery ticket outlet.) “At the time of the regular Entry drawing, then,” Schade says, “we’ll also draw 50 of these losing names. Forty-nine of them will win $2,500 apiece, and the 50th will participate in the Big Spin just like the Entry ticket holders.”
Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.
