Wait, Wait, Don’t Retire!
It is no mystery that as retirement age approaches, many individuals begin to experience health issues. These issues often affect the ability to maintain gainful employment. The Social Security Administration is aware of this fact and has built provisions into retirement benefits to allow retirement as early as age 62. Choosing to retire early is not without cost. Retiring at age 62 will result in up to a permanent 30% reduction of benefits. For many Americans, this reduction in benefits is worth the relief that comes with not having to maintain full-time employment while navigating a complex health picture.
Money in Retirement
According to the LIMRA Secure Retirement Institute, approximately 42% of retirement income paid today is sourced from Social Security, and 30% is paid by traditional pension plans. With traditional pension plans no longer being offered by most employers, and with 75% of Americans having less than $100,000 saved, reliance on Social Security for sustenance in retirement is growing. Unfortunately, this reliance is growing at a time during which there is much concern for the future liquidity of Social Security. Though it is clear that benefits will be payable in the future, many retirees starting in the 2030s will be receiving reduced benefit amounts as a result of depletion and poor planning by Congress. When considering that already reduced benefit amounts in the future may be further reduced by taking early retirement, a wealth-saving strategy is needed.
Why are People Retiring?
In a study published in 2000, (Soc Secur Bull. 2000;63(4):1–16.), researchers noted that more than 20 percent of individuals who took early Social Security Retirement benefits did so in part due to health problems. These individuals were noted to have problems that substantially impaired their ability to work, and their early retirement benefits were essentially serving the purpose of disability benefits. Unfortunately, those individuals who elected to retire prior to their full retirement age were penalized by having their benefits permanently reduced. Though this study is nearly 20 years old, those same maxims certainly apply today. Many individuals retire rather than allowing themselves to become poor performers at work or suffer the indignity of being fired. This is a generous act toward employers, but it comes at the expense of monthly retirement income forever.
Before Retiring, Consider This
People that are near early retirement age should strongly consider filing for disability if their health is bearing on their ability to work. Some individuals believe that Social Security Disability is akin to welfare and is taking advantage of a benefit they do not need. This is untrue. Social Security Disability benefits are insurance in the purest form. During the years one is employed, deductions are taken from each check (the OASDI line item) and paid to Social Security. These deductions are used to purchase insurance from the largest insurer in the world, the federal government. Individuals who would have no problem filing an automobile or homeowners claim should feel no compunction about declaring disability if their health prevents them from working.
Medical Treatment is Required
Disability is not simply paid to those who request it. In order to support a claim for disability, one must establish that they are unable to engage in any substantial gainful activity as a result of medically determinable physical or mental impairments which can be expected to result in death or will last for a continuous period of not less than 12 months. Because of this, it is highly advisable that individuals who are suffering from ailments (age-related or otherwise) seek care. If an individual begins dealing with manageable, yet significant medical issues such as arthritis, back pain, diabetic neuropathy, or other pain related conditions, the medical records associated with the care received should help to establish the fact that these ailments directly bear on the ability to perform this work full time. People dealing with these issues near the end of their career should not simply retire early but should declare disability before doing so.
Starting at age 50, the issue of vocational adaptability becomes a major issue when evaluating disability. As individuals age, their ability to adapt to other work is recognized to be reduced. At age 55, for example, for individuals who are limited to sedentary work, there must be very little, if any, vocational adjustment required in terms of tools, work processes, work settings, or the industry. For this reason, common health problems may represent a disabling condition with regard to many kinds of work.
Another reason to consider declaring disability immediately prior to taking early retirement is to take advantage of the disability freeze. Because disability and retirement benefits are calculated from a worker’s earning history, periods of unemployment or underemployment can cause the average earnings amount to be reduced. This subsequently can cause a permanent reduction in benefits. By becoming approved for disability benefits, the period during which work was not performed because of health issues will not count against the worker as they retire or secure disability benefits.
Try for Disability AND Retirement
Declaring disability prior to taking early retirement does not prevent an individual from retiring early. Many individuals are reluctant to file for disability due to the length of time required by the adjudication process. This process often lasts for more than two years, so timing is a valid concern. That concern is reduced because filing for disability does not affect the right to file for early retirement. Both benefit types can be sought near the same time (though declaring disability prior to filing retirement is probably a best practice).
Early retirement is be payable upon establishing entitlement, which is usually a short process. Disability claims take longer, but when the disability case finishes the adjudication process, one of two things will happen. If a retiree is approved for a disability case that they filed before taking early retirement, the monthly benefit amount will increase from the reduced benefit amount to near the full retirement benefit amount. If denied for disability, reduced retirement benefits are still payable and nothing else happens. By pursuing the dual strategy, a worker who cannot sustain work due to their health could still receive benefits earlier than full retirement age but in an amount that is very near their full retirement benefit. If this opportunity fails, there is no cost to the worker if they would have already stopped working to retire early.
A Strategy to Consider
Many individuals simply stop working as soon as their health interferes with their work. A change in health that affects the ability to work should cause individuals near retirement age to consider this strategy. Before retiring early in response to a health change, consider filing for disability before filing for retirement. There is no reason not to file, and the upside can be considerable.
For advice about declaring disability, contact Attorney Thomas C. O’Brien of O’Brien & Feiler. Consultations are free, no legal fees are payable unless you win, many helpful tools and resources are available, and if you are in a different part of the country, O’Brien & Feiler will help you find local competent counsel.