Can Returning to Work Affect Social Security Disability and Future Retirement Benefits?

If I have a client who was permanently disabled and was drawing disabled benefits based upon his prior salaried employment, but then returned to work as a self-employed individual, would he still be eligible for SS benefits upon retirement based off his years as a salaried employee? Would they still qualify for spousal benefits?

The salary from the salaried employment and the self-employment would all be considered when computing the retirement benefit. Entitlement to spousal benefits would be based on the new PIA.

When a client who was permanently disabled and receiving Social Security Disability Insurance (SSDI) returns to work as a self-employed individual, several factors come into play regarding their future Social Security benefits, both for retirement and spousal benefits. Here’s how the situation generally works:

1. Impact on Retirement Benefits:

   • Combined Earnings: Social Security considers all earnings when calculating retirement benefits. This includes both the income from previous salaried employment and any earnings from self-employment. When your client reaches retirement age and applies for Social Security retirement benefits, the Social Security Administration (SSA) will calculate the retirement benefit based on the highest 35 years of earnings, whether those earnings were from salaried or self-employed work.
   • PIA Calculation: The Primary Insurance Amount (PIA), which is the amount your client would receive at full retirement age (FRA), will be recalculated to include all covered earnings. This means that the years of salaried employment, as well as any income earned through self-employment, will be factored into the final benefit amount.

2. Eligibility for Spousal Benefits:

   • Spousal Benefit Calculation: The entitlement to spousal benefits will be based on your client’s PIA after considering all earnings, including those from self-employment. If your client’s spouse is eligible for Social Security, they can receive spousal benefits based on the new PIA, which takes into account both salaried and self-employed earnings.
   • Spousal Benefit Amount: Spousal benefits are typically calculated as up to 50% of the working spouse’s PIA. Therefore, the updated PIA reflecting both salaried and self-employed income will determine the exact spousal benefit amount.

3. Returning to Work After Disability:

   • Impact on SSDI: If your client returns to work and earns above the substantial gainful activity (SGA) threshold, it could impact their SSDI eligibility. However, once they reach retirement age, SSDI benefits convert to regular Social Security retirement benefits, and the amount will be based on their PIA, incorporating both salaried and self-employed earnings.
   • Trial Work Period: The SSA allows for a trial work period during which a disabled individual can test their ability to work without losing SSDI benefits. If the client continues working after this period, the SSA will reassess their disability status.

4. Planning Considerations:

   • Income Tracking: It’s essential for your client to keep detailed records of all earnings, both from salaried and self-employed work, to ensure accurate Social Security benefit calculations.
   • Consult SSA: If there are any concerns or questions about how returning to work might affect benefits, it’s advisable to consult directly with the SSA or a Social Security expert to get a clear understanding of how all earnings will impact future benefits.

In summary, your client’s retirement and spousal benefits will be based on the total of all covered earnings, including both salaried employment and self-employment income. The new PIA will reflect this combined income, and spousal benefits will be calculated accordingly.

The content on this blog is for informational purposes only and is not legal, financial, or professional advice. Social Security rules change periodically, so some information may become outdated. For the most accurate advice, consult a certified National Social Security Advisor (NSSA®). Social Security Professionals, LLC, and NSSA® are not responsible for any errors, omissions, or actions taken based on this blog's content. Use of this blog does not create a client relationship, and all information is provided "as is" without guarantees. By using this blog, you agree to hold Social Security Professionals, LLC, and NSSA® harmless from any claims or liabilities arising from its content. For personalized guidance, contact an NSSA® professional.