Mandatory Spending

Function 650 - Social Security

Eliminate Eligibility for Starting Social Security Disability Benefits at Age 62 or Later

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
Change in Outlays 0 -0.2 -0.6 -1.2 -1.7 -2.3 -2.9 -3.4 -4.0 -4.5 -3.7 -20.8

This option would take effect in January 2022.
Estimates include effects on Social Security only and not on other federal programs that could be affected, such as Supplemental Security Income, Medicare, Medicaid, and subsidies for coverage obtained through marketplaces established by the Affordable Care Act.

Under current law, people who qualify for Social Security Disability Insurance (DI) are eligible until they reach their full retirement age (FRA). For workers born after 1959, the FRA is 67. (For those born earlier, the FRA is lower.) Workers who claim retirement benefits after turning 62 but before reaching their FRA receive smaller benefits for as long as they live. By contrast, workers who claim DI benefits before their FRA are not subject to a reduction in DI benefits, and when they reach their FRA, their DI benefits are automatically converted to full retirement benefits. That difference in benefits encourages some people between age 62 and their FRA to apply for DI when they apply for Social Security retirement benefits. Those people receive reduced retirement benefits until they are approved for the DI program. If approved, they then receive larger benefits for the rest of their life than they would if they had applied only for retirement benefits.

Under this option, workers would not be allowed to apply for DI benefits after their 62nd birthday, nor would they receive DI benefits for a qualifying disability that begins after that date. Under such a policy, people who would have become eligible for DI benefits at age 62 or later under current law would instead have to claim retirement benefits if they wanted to receive Social Security benefits based on their own earnings. Those people would receive up to 30 percent lower monthly benefits than they are scheduled to receive under current law. Workers who became disabled and applied for benefits before age 62 would not be affected by this option.

The Congressional Budget Office projects that under current law, the Disability Insurance trust fund would be exhausted in fiscal year 2026 and the Old-Age and Survivors Insurance trust fund would be exhausted in calendar year 2031. Under section 257 of the Deficit Control Act, in its projections CBO must assume that scheduled Social Security benefits would be paid even after the program’s trust funds were exhausted. However, the government’s legal authority to pay benefits would then be limited to the amount received in dedicated tax revenues, which would be insufficient to pay scheduled benefits in full. After trust-fund exhaustion, therefore, for the people who would be affected by this option, the reduction in payable benefits would be smaller than the reduction in scheduled benefits.