If you are disabled before retirement, should you retire early or apply for Social Security disability?
If you are disabled before reaching full retirement age, you might think retiring early is your best option. But, before you decide to do so, be sure you've looked at the BIG PICTURE.
By Harry Abrahamsen
Health problems can and do occur before people have reached "full retirement age." According to the Social Security Administration (SSA), one in four people under 20 will become disabled.
The Centers for Disease Control reports that 3 out of 4 Americans aged 65 and older have multiple chronic conditions such as arthritis, high blood pressure, diabetes, and obesity. These conditions may lead to situations where a person becomes disabled.
Current laws define disability as an inability to perform substantial gainful activities because of medically determined physical or mental impairments. Disability, as defined under the law, is expected to last for a continuous period of at least twelve months or expected to result in death.
The SSDI option. Should you consider it?
Many seniors who experience disabilities at or near retirement age immediately consider the option to retire before their "full retirement age," or FRA.
As of 2020-21, you can apply for early retirement as early as age 62. However, if you do so, you are eligible for only 71.7% of your monthly benefit amount. If you are 62, your Social Security Disability Benefit (SSDI) would most likely be higher than your early retirement payments.
When you attain full retirement age, a disability benefit automatically converts to retirement benefits. In 2021 FRA increases to 66 years and 10 months for people who were born in 1959.
While a disabled senior may decide to retire early, they may not be aware there could be another option. Social Security offers disability insurance that may be a better choice for some disabled retirees, although it has strict and specific guidelines.
While it is true that qualifying for SSDI is often a lengthy and frustrating process, doing so could result in thousands of dollars more in income, especially for younger disabled seniors. Retirees who choose to apply for SSDI and qualify receive 100% of the monthly benefit, which will continue when it switches over to regular Social Security payments at full retirement age.
What is the downside of SSDI?
Beginning the SSDI claims process is notoriously time-consuming and full of bureaucratic pitfalls. Initial applications, even those supported by adequate documentation, are often denied.
You must be patient, determined, and prepared to make your case if you want to gain approval.
If you can prove your diagnosis, document the severity of your condition, provide support for limitations that the disability imposes, outline treatments received, and your responses to those treatments, you can usually make your case and get benefits.
In some instances, people have found that having an advocate or attorney working with them facilitates the process and increases chances for approval.
Before undertaking the SSDI application process, though, you should sit down with your financial advisor and disability attorney or Social Security expert to map out the big picture. You will need to understand which conditions qualify and which do not. You may also want to discuss the idea of applying for BOTH SSDI and early retirement, especially knowing that disability claims can take months, sometimes years, to process.
Becoming disabled in retirement or shortly before retirement is an unfortunate but common occurrence. Some strategies can help mitigate the negative consequences of disability, including retiring before full retirement age or attempting to qualify for Social Security Disability Insurance. It's a great idea to put together a team of experts to help you plan your ideal plan for dealing with your disability's financial impact.