When financial advisers discuss Social Security benefits, it is usually in the context of counseling clients when to claim retirement benefits and the impact of that decision on the amount of survivor benefits for the remaining spouse.
But one of the Social Security program's most valuable features is disability benefits that are paid to workers and their dependent family members when they are too sick or injured to work.
Yet many advisers are at a loss when it comes to guiding a client through the disability application labyrinth. That's when it's time to call in the pros.
One adviser contacted me recently about his client that is now a quadriplegic following a car accident several years ago. The client receives 24-hour care at home at enormous expense. But it never occurred to the family — or the adviser — to apply for Social Security disability benefits. The issue only came up when the adviser tried to help the couple apply for Medicare at age 65.
"I hear people all the time talking about not wanting to apply for a handout," said Mike Stein, assistant vice president at Allsup, an Illinois-based firm that represents people filing for disability claims. "It's unfortunate that there is a stigma attached to it," he said, noting that workers have paid for these benefits through their payroll taxes over their entire career. "It's like paying car insurance premiums for 20 years but never submitting a claim when you have an accident."
More than 10.6 million people — including 8.8 million disabled workers and their 1.8 million family members — receive Social Security disability benefits. That represents about 16% of total Social Security beneficiaries. Nearly 90% of American workers under age 64 in covered employment are protected in the event of a severe and prolonged disability. The average Social Security disability benefit in 2017 is about $1,200 per month.
The Social Security Administration estimates that one in four 20-year-olds will be disabled before their full retirement age of 67 and two-thirds of the private-sector workforce has no private long-term disability insurance.
Given how a severe disability or terminal illness could disrupt a family's carefully laid financial plans, it would be wise for financial advisers to develop a list of resources where they can refer clients for help should the need arise.
Applying for Social Security is a lengthy and difficult process. In general, an applicant must meet two different earnings tests: A recent work test, based on age at the time of disability; and a duration of work test to show that the individual worked long enough under Social Security to qualify for benefits. For workers age 31 or older, they must have worked five out of the 10 years before their disability began. Younger workers face a less stringent duration test.
After filing an initial application, most workers wait four to six months for a response and Social Security denies two out of three requests, meaning many legitimately disabled people are denied benefits. Applicants have 60 days to appeal. Social Security then takes another look at the case. This step usually takes three to five months and the approval rate hovers around 20%.
At that point, an applicant can appeal an adverse decision before an administrative law judge. There is a backlog of more than 1 million pending cases. The average wait at the hearing level — for people who have already been denied benefits twice — is 605 days.
In 2008, Social Security implemented the Compassionate Allowance initiative (CAL) to fast-track individuals with certain conditions through the disability determination process by prioritizing their disability claims. Since then, Social Security has expanded its list of CAL conditions from 50 to 225.
But the U.S. Government Accountability Office (GAO) recently found that the Social Security Administration needs to develop a better method for handling the CAL initiative. Many disabling conditions are overlooked, which means these deserving applicants' claims are not expedited and they end up stuck in the lengthy backlog of Americans waiting for hearings.
Due to a lack of accuracy and consistency in the process, a simple typo in an application can cause it to not be flagged as a compassionate allowance at all, even for a condition on the approved list, Mr. Stein explained.
"I encourage people to file for disability benefits as soon as they become disabled and get an expert involved early," Mr. Stein said. "The sooner you get in line, the sooner you get to the front of the line."
Firms such as Allsup are paid on a contingency basis only if the client is awarded disability benefits. Fees are regulated at the federal level. The standard fee is 25% of past-due benefits, not to exceed $6,000.
Allsup offers a free online assessment tool for Social Security Disability Insurance eligibility and will flag individuals who qualify under the Compassionate Allowance program.