Everything You Should Know About the Social Security Five-Year Rule

Key Takeaways

• The five-year rule is applicable to individuals who previously received disability benefits, either through Social Security Disability Insurance or Supplemental Security Income.

• While SSDI benefits switch to retirement benefits upon retirement age, the payment amount stays the same. 

•  Established by the Social Security Administration, the rule permits people to get around the required waiting period for disability benefits.

More than 25% of current 20-year-olds will become disabled before turning retirement age, according to the Social Security Administration. However, qualifying for Social Security Disability Insurance (SSDI) is more than a notion. In fact, some 67% of applicants are denied benefits. 

Those who once received payments and now wish to get back to work must understand the Social Security five-year rule. Here is everything to know about it.

What is the Social Security Five-Year Rule?

Established by the Social Security Administration, the rule permits people to get around the required waiting period for disability benefits.

The five-year rule is applicable to individuals who had previously received disability benefits, either through Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). These individuals must have stopped collecting those payments and within five years, they must have experienced a mental or physical disability that prevented them from returning to the workforce.

Who is Eligible for Social Security Disability?

The SSA has stringent standards when it comes to SSDI eligibility. Benefits are paid only to those whose conditions totally prevent them from working. The condition must also be expected to last for at least a year or ultimately cause death.

Additionally, because SSDI is paid through employment taxes, an inflexible work test must be passed. 

For those who develop a disability and seek benefits before full retirement age, here are the requirements:

• In the quarter the person turns 31 or older, they must have been employed for five of 10 years, which ends with the quarter in which the disability developed. The person also must have been disabled for five straight months.
• The potential beneficiary must have worked half the time in the quarter they turn 24 but before the quarter of their 31st birthday. That period of work must have started with the quarter after they turned 21 and end the quarter in which they became disabled.
• By or before the quarter the person turns 24, the applicant must have tallied a year and a half of work. That work must have occurred during the three-year timeframe ending with the quarter they became disabled.

Note that while SSDI benefits switch to retirement benefits upon retirement age, the payment amount stays the same. The amount of the disability payment will depend on the person’s lifetime earnings. Income credits are earned for every year the employee works.

Also, there are different rules if the applicant is blind or seeks survivor benefits.

What is the Duration of Work Test?

Eligibility for SSDI requires the applicant to have worked for a minimum of a year and a half. However, that requirement goes up with age. To determine the number of quarters needed to satisfy the test, the individual must subtract the year they turned 22 from the year the disability developed.

What are Sample Thresholds Depending on Age at Developing Disability?

Depending on the age the person’s developed a disability, the work-quarter threshold looks like this, for example:

• Age 60: 9.5 work years 
• Age 58: 9 work years 
• Age 54: 8 work years
• Age 52: 7.5 work years
• Age 50: 7 years
• Age 48: 6.5 years
• Age 46: 6 years
• Age 44: 5.5 years
• Age 42: 5 years
• Age 38: 4 years
• Age 34: 3 years
• Age 30: 2 years
• Prior to age 28: 1.5 years

How Do You Apply?

It normally takes between three to six months for an SSDI application to be processed. So, if the individual believes they are eligible, they should apply as soon as the disability manifests. Note that applicants may be eligible for retroactive benefits for a maximum of the previous 12 months.

Potential beneficiaries can apply online at ssa.gov/applyfordisability. Submissions over the phone are also accepted.

What are the Benefits of Meeting the Five-Year Rule?

There are cases in which those who did receive benefits seek to return to work, be it to their old employer or a new one. However, they find that their mental or physical disability prohibits them from continuing. In these cases, the rule makes it unnecessary to reapply for disability benefits. 

What are Compassionate Allowances?

This is an SSDI provision that permits applicants with certain severe mental or physical conditions to forego the SSA work history requirement. Such conditions, which are determined with assistance from healthcare professionals, can include rare genetic diseases as well as certain life-threatening illnesses. 

The provision is meant to support those who need financial help but do not have a long work history.

What are Options if You Do Not Qualify?

If the individual lacks the work history for SSDI, they might be eligible for Supplemental Security Income. For eligibility, they must meet the Social Security Administration’s definition of disability, be at least age 65, or be blind. The person also limited assets and income.

How to Help Maximize Your Retirement?

One way to make the most of retirement is to add alternatives to retirement holdings. In the past, such an approach was often eschewed due to its complexity and exorbitant fees.

That was then. Take Yieldstreet, one of the leading alternative investment platforms, for instance. It permits investors to use private-market alternatives to easily diversify their portfolio. Assets in a tax-advantaged Yieldstreet IRA cut across a broad variety of classes, including real estate and art.

In addition to traditional IRAs, Yieldstreet’s offering also supports Roth, SEP, or SIMPLE individual retirement accounts, as well as 401(k) accounts.

Overarchingly, the aim is to make retirement portfolios less reliant on a stock market that is intrinsically volatile — while maximizing prospects for higher long-term returns.

Alternative Investments and Portfolio Diversification 

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary 

As set by the SSA, the Social Security disability five-year rule allows eligible individuals to skirt the mandatory waiting period for receiving disability benefits. A Social Security disability attorney may be helpful here.