Four Reasons NOT to Rely on Social Security Disability Insurance

Good to Know

You just asked your client about their long-term disability plan.  They replied “I have that covered. I have Social Security Disability Insurance.” Here’s a hint for the rest of this article—your client probably does NOT have this risk “covered” if that’s the only disability insurance they have.

There are at least four glaring gaps and risks inherent to Social Security Disability Insurance (SSDI), including:

  • Punitive definition of disability,
  • Income replacement gap,
  • Employment history, and
  • The “Fives.”

We’ll begin with Social Security’s definition of disability.

Punitive Definition of Disability—Upsize Those Fries Mister?

Social Security defines disability as the inability to perform any “substantial gainful employment.” This definition of disability is referred to as the “any occupation” standard.  Here’s what that means in practice—your client may be ineligible for SSDI if they can say “upsize those fries, mister?” or “welcome to MegaMart.”

In stark contrast, group and individual disability policies underwritten by private insurance companies generally have far more favorable definitions of disability available such as the inability to perform one's own current occupation ("own occupation") and the inability to perform an occupation for which one is reasonably suited by education, training, or experience (“reasonable occupation”).

Reliance on SSDI alone is considered a financial planning deficiency by CFP® Board that should be addressed in a financial planning engagement.

Income Replacement Gap

The average annual SSDI benefit paid to an individual was $1,282 in 2022. Could your client survive on that amount?  Distressingly, that amount is only $200 away from the federal poverty level.  But even that relatively low benefit is potentially subject to reduction for:

  • Employment income over $1,310 per month,
  • Workman’s Compensation offsets, and
  • Outstanding government debt that is in collection status.

Employment History

SSDI is designed for qualifying individuals that meet two earnings tests—the duration test and the recency test.

Duration Test—a worker must generally have worked a specified number of years1 under this test.  A summary chart follows.

Duration Test Years of Work Required to Qualify for SSDI
Age Years Required
30 2
42 5
52 7.5
60 9.5

Recency Test—in addition to meeting the duration test, a worker must have worked recently. For example, a 42-year-old must have worked at least five years in the ten years before the disability occurred.  The recency test “screens out” workers who have not worked recently, thereby conserving SSDI funds for those who have.

Beware the “Fives”

Let’s pause for a moment.  Assume an individual’s disability meets the SSDI requirements.  Further, assume that the individual passes the duration and recency tests.  The individual is subject to the 5-month rule and, potentially, to the 5-year rule.

Five Month Rule

You’d expect SSDI benefits to begin immediately, right?  You may not be surprised to know that there’s a five-month waiting period before benefits begin.

Five Year Rule

Suppose an individual was receiving SSDI more than 5 years ago, recovered from the illness that caused the disability, and is now working full time again. Now suppose the illness recurs and the individual is once again disabled under the SSDI definition.  Regrettably, the worker must wait another 5 months before benefits resume.

Key Takeaways

Before the author closes this article, here’s a quick update on the solvency of SSDI. Great news! According to the 2022 Board of Trustees Report, SSDI will remain solvent and able to pay 100% of promised benefits for at least 75 years.

Here are your key takeaways:

  • SSDI is funded through Social Security taxes withheld from a worker’s paycheck or, if self-employed, paid directly to the federal government. There’s no additional premium required for SSDI coverage and that’s fortunate because the coverage is inadequate.
  • The lack of an adequate disability insurance policy transcends passing the CFP® If a worker earns at least an average compensation, they should be informed of the potentially disastrous risk they’re taking and take steps to mitigate that risk.  For most workers without a group long-term disability policy,2 mitigation means the purchase of a privately underwritten disability policy with a minimum of “reasonable occupation” coverage and preferably, an “own occupation” coverage.
  • Consultation with an insurance professional is strongly recommended.

The repercussions of inadequate disability insurance can lead to downsizing a home, premature distributions from retirement assets, nonqualifying distributions from Section 529 College Savings Plans, 401(k) plan loans, and more. In short, these risks can wreck a family's financial security. A comprehensive financial plan must include assessment and—if needed—mitigation of this risk. A savvy advisor or planner simply needs a sound understanding of these risks.  Get that sound understanding through our CFP® Curriculum when you consider CFP® certification. You’ll discover a select few of the reasons our students’ pass rates are much higher than the national averages.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide identity theft protection, investment, income tax, risk management, retirement, estate, or financial planning advice of any kind. An experienced and credentialed expert should be consulted before making decisions relating to the topics covered herein. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.

1  We define a “year” as a year in which the worker has earned 4 credits.  One credit is earned for each $1,510 in covered earned income (2022 as indexed).

2  These policies should also be reviewed to evaluate potential gaps.