Disability Pay vs Social Security

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on August 10, 2023

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There is no doubt that there are two forms of benefits available to those who cannot work.

Both Social Security and disability pay sound like good alternatives for people who need the money because they can't work or lost their job.

The question then becomes does disability pay more than social security?

Unfortunately, the answer is not as simple as yes or no.

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Disability Pay and Social Security Breakdown

The main difference between disability pay and social security is that the latter is a government-run program, while the former comes from an insurance company.

Disability does not refer to any specific medical condition; it's a term used to describe someone who cannot work for no apparent reason. The likelihood of qualifying for Social Security greatly increases if the person does have a disability.

On the other hand, disability pay comes from a specific kind of insurance policy that an employer is required to offer its employees under the Federal Employees Compensation Act (FECA).

This insurance provides compensation for people who cannot work because they are injured on the job. Injuries can include amputations and burns, and most people who receive this type of compensation work in blue-collar jobs.

People with disabilities who don't have a job with an employer offering FECA insurance can purchase their own disability policy.

Amount of Disability Pay vs Social Security

Many people believe that if they qualify for social security or disability pay, they will receive more than working a low-paying job.

Unfortunately, this is not necessarily true. Disability pay does tend to be higher than social security benefits because it does not include taxes and other deductions that can significantly reduce the amount someone receives from Social Security.

However, disability pay does affect other things such as retirement benefits and unemployment insurance (if the person does not work anymore), which makes the actual amount received lower than people expect.

Why Would Someone Choose Disability Instead of Social Security?

Both disability pay and social security are intended to help people who cannot work.

However, there are many reasons why someone might choose one over another. People who receive disability pay do not pay taxes on the money they receive, which does not affect their Social Security payments.

Also, disability does not reduce benefits for other programs such as food stamps or Supplemental Security Income (SSI), while Social Security does.

On the other hand, social security does offer people a monthly amount of money that can help them live comfortably when they retire.

Disability pay does not offer this option to its recipients, but many people may not be able to work at all during their retirement.

Is It Worth Going on Disability if You Have a Good Work History and Are Not Disabled?

It may seem that someone who has worked for 35 years does not qualify for Social Security.

However, if the person does not have much money saved for retirement, does not receive any kind of pension, or does not have a spouse who can financially support them, it is likely that they will qualify.

The same goes for someone who does not work much because their job does not offer disability insurance.

Since Social Security does provide benefits whether or not the person ever worked, does not have a pension, or does not have much saved for retirement, they may qualify.

Since Social Security does not take taxes from its benefits and does not reduce other benefits such as food stamps and unemployment insurance when someone receives social security, people who can barely afford to live on their own often do well with this program.

If someone does not meet the requirements for social security, they may still qualify for other financial assistance such as housing and medical care provided by state and federal programs.

The Pros and Cons of Claiming Disability vs Social Security

For many people, disability does provide enough money to live comfortably even if it does not affect their Social Security benefits.

However, going on disability does have some drawbacks that a person should be aware of. Most people who receive a disability payment lose their employer-provided insurance coverage and must purchase their own.

They also tend to have more health issues than people with ongoing jobs because they do not have regular medical care from a doctor or hospital.

People who are on disability for an extended period of time also tend to lose the benefits that come with having a job. For example, they may not be able to take advantage of employer-sponsored retirement accounts or receive bonuses.

The Benefits of Claiming Disability Versus the Costs

The most obvious benefit of being disabled is receiving enough money to live comfortably. However, there can be other benefits that people do not immediately consider.

For example, some people who go on disability are able to pursue activities they enjoy because they no longer need to work eight-hour days for 40 hours a week (or more).

They may also have more time to spend with their families since they only work five-hour days or less.

People may also have more flexibility when it comes to their work schedule because they are not required to report for duty at a certain time each day or week.

For people who are disabled, receiving a disability pay does have some drawbacks that can affect their lives in unexpected ways.

They may be unable to get health insurance through their job and must instead rely on coverage provided by Social Security.

Also, the disability does not offer any retirement benefits. Therefore, people who go on disability may find it difficult to live on their own once they retire if they cannot work and do not have enough savings put away for the future.

The best way to decide which one to choose is to go with the one that has better benefits.

The Best Way to Decide Which One to Choose

When deciding between Social Security and disability, it's important to consider all of your options.

You should speak with a lawyer, financial planner or accountant who can help you understand the differences in income between these two programs so you can make an informed decision.

If you're not yet retired, you may also wish to speak with your employer about how it is possible for you to create a long-term financial plan that does not hinge on receiving one or the other of these programs.

However, if your income does rely on getting disability benefits at this time, you may wish to see if it's possible for you to meet the requirements so you can turn this income stream into a stable one that does not depend on how your health goes.

The financial planner or accountant may be able to help you with this.

If you feel confident about going on disability because it does provide enough money for you to live on comfortably, you may not need to worry about how much money is available or what your long-term financial situation will be like if you cannot work.

While this does mean that Social Security does not affect your income, it does mean that you are completely reliant on the government for all of your health care and retirement benefits. This can be a risky way to live, and it does mean that you're giving up your future freedom.

The Bottom Line

When making a decision between Social Security and disability, it can be helpful to know that each does have its own set of unique pros and cons.

While the immediate benefits of going on disability may seem attractive, there are many disadvantages that people do not always consider. However, with Social Security, you never have total control over your financial future.

The best solution does depend on your personal situation. You should be aware that going on disability does have some drawbacks, but if you can meet the qualification requirements and it does provide enough money to live comfortably, this may not affect you as much as it would otherwise.

Social Security does have its own set of drawbacks because you cannot qualify for it until you reach full retirement age and you give up your freedom in terms of how to spend your time and money.

You also may not be able to work or depend on government funding for its own survival; the Social Security trust fund does rely on income from other sources such as taxation to help support those who go on disability.

Disability Pay vs Social Security FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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