The Early Retirement and Disability Decision

November 7, 2018

Determining the timing for when to retire can often be a difficult decision and it becomes even more challenging when the individual is dealing with a medical condition that interferes with their ability to work.  Most people are aware of the retirement benefits that are available to workers who have paid into Social Security, including retirement benefits between ages 65 and 67, as well as early retirement benefits at a reduced rate at age 62, but often folks who retire during that age range overlook the option of filing for Social Security disability (SSDI) benefits, as well.

If you have a physical or mental condition that has lasted or is expected to last at least 12 months and prevents you from being able to maintain work on a consistent basis, you may be eligible for disability benefits from the Social Security Administration.  When getting ready to retire between the ages of 62 and 66, you may want to consider whether you should also file an application for disability benefits.  Social Security allows you to simultaneously file for disability and early retirement benefits, as early as three months before your 62nd birthday.  By doing so, you can start to collect your early retirement benefits while your disability application is being adjudicated.  If your claim for disability benefits is approved after you start receiving early retirement benefits, you will be eligible to receive your full SSDI benefit amount.

It is important to note that there is some risk in pursuing this route.  When you elect to take early retirement after age 62, you are penalized for taking your retirement early and you receive a reduced benefit amount and that benefit amount does not increase once you reach full retirement age.  If you file for both early retirement and disability and your disability claim is ultimately not approved, you are stuck with that reduced early retirement rate for the rest of your life.  This is important to consider when deciding whether and when to file for early retirement benefits.

If you’ve already started collecting early retirement benefits through Social Security, but stopped working due to a medical condition, it may not be too late to change course.  If the Social Security Administration determines that you became disabled before you began to receive early retirement, you would be entitled to retroactive benefits equal to the difference between your early retirement payment and your full SSDI benefit amount and your benefits going forward would be the full SSDI amount, rather than the reduced early retirement rate.  Additionally, if you can prove that your disability started before you were eligible for early retirement, you will get the benefit of a “disability freeze” when your benefit amount is calculated.  This may be a good time to explain how Social Security benefits amounts are determined.  Both SSDI and retirement benefits are calculated using a formula that is applied to your average indexed monthly earnings during the 35 years in which you earned the most money while working.  A “disability freeze” automatically disregards any low earning or zero earning years on your record for the period that your disability prevented you from working.  Without the “disability freeze,” years with no earnings or low earnings would otherwise reduce your benefits.  However, it is very important to note that if you have started receiving early retirement benefits and want to apply for disability, you must do so before you are one year past your full retirement age.

If you file for both early retirement and disability benefits, but Social Security decides that you did not become disabled until after you began to receive early retirement benefits, you will not receive any retroactive payments, but your early retirement benefits will simply convert to your SSDI benefit amount.  Once you reach full retirement age, your full retirement benefits will be reduced based on how many months you received early retirement benefits.

Ultimately, there are many factors to take into consideration when deciding when to file for Social Security benefits, but it is important to be aware of all of the options that are available to you.  If you are considering filing for disability, it is always a good idea to consult with an experienced attorney to get advice about how best to present your claim to the Social Security Administration.