When to Apply for SSDI with a Severance Package: What You Need to Know

I have a client who was diagnosed with multiple myeloma.  He was laid off from his job and is going to be receiving a severance package for 30 weeks. His SSDI payment would be about $3115 a month.  He is wanting to know when it would make sense for him to apply for SSDI knowing that he has a severance and I explained to him that he would be subject to the annual earnings test. Also, if he takes SSDI now ($3115) will that take him to his FRA to receive a retirement benefit? His retirement benefit at 62 is less than his SSDI benefit so I want to be certain he can continue to collect that until he reaches his FRA.

Your client, who has been diagnosed with multiple myeloma and is set to receive a 30-week severance package, is considering when to apply for SSDI. Here’s what he needs to know:

1. Filing for SSDI:

   • Apply Now: Your client can file for SSDI immediately. The severance package will not interfere with his eligibility for disability benefits.
   • No Earnings Test Impact: Since severance is not considered earned income, it does not affect SSDI eligibility under the earnings test.

2. SSDI Payment Until FRA:

   • Continuous Benefit: If approved for SSDI, your client will receive $3,115 per month until he reaches his Full Retirement Age (FRA). At that point, the SSDI benefit will automatically convert to a retirement benefit of the same amount.
   • Retirement Benefit Comparison: Since your client’s SSDI benefit is higher than his retirement benefit at age 62, it’s advantageous to start SSDI now, as it will provide a higher income until FRA.

3. Considerations for Filing Early Retirement:

   • Filing Early for Retirement: If your client is at least 62, he could file for reduced retirement benefits while awaiting the SSDI decision. If SSDI is approved, his benefits would be adjusted to the unreduced SSDI amount retroactively. If not approved, he would continue at the reduced retirement rate.

In summary, your client can file for SSDI now without worrying about the severance package affecting his benefits. His SSDI benefit will carry him through to FRA, where it will convert to his retirement benefit without any reduction. If he’s considering early retirement benefits while waiting on the SSDI decision, the choice should be made with the understanding that the higher SSDI amount will prevail if approved.

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