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Health Issues Forcing Early Retirement? Do This Before Applying for Social Security

By Christy Bieber – Jun 25, 2020 at 6:32AM

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It could help you avoid a cut to your retirement benefits.

Many Americans want to work well into their 60s and even into their 70s, so they'll have more money for retirement and can delay claiming Social Security to maximize their income from it.

Unfortunately, not everyone can do this. If you develop a health issue that causes you to stop working, you may feel as though you have no choice but to start your retirement benefits early.

Before you do, though, you need to explore another option that could prevent you from reducing the size of your Social Security checks. That option is claiming Social Security Disability benefits instead. 

Doctor talking with older male patient.

Image source: Getty Images.

Why claiming Social Security Disability benefits can be a better choice

Social Security Disability Insurance (SSDI) is another program you pay into, just like retirement benefits. It's an entitlement that's there to provide for you if you become unable to work due to a severe disabling condition. And you're able to claim it at any time until you've reached your full retirement age (FRA), which is between 66 and 67, depending on when you were born. 

To understand why that's important, you need to know that if you claim your retirement benefits before FRA, you're subject to an early filing penalty that reduces your standard benefit amount. This penalty could cost you as much as 6.7% per year if you claim retirement benefits up to three years early, and an additional 5% per year if you start your retirement benefits more than three years before FRA. 

If you claim Social Security disability instead of retirement benefits when you're younger than your FRA, you won't face this penalty that permanently reduces your monthly income. Your SSDI benefits are based on your standard retirement amount, even if you're younger than full retirement age when you claim them. Then, when you hit your full retirement age, you can just switch over to retirement benefits and still continue to get your higher standard benefit. 

There's also another big advantage to opting for SSDI too. Normally, your standard benefit is calculated based on average earnings over the 35 years your earnings were the highest. If you're found to be disabled and you have years of no income or low income because of it, a disability freeze ensures those years won't count against you when average earnings are calculated. 

So, basically, by opting for SSDI instead of Social Security retirement, you don't get hit with early filing penalties and you could get a higher standard benefit, raising your Social Security income in two different ways. 

Of course, you do need to qualify for SSDI, which can be challenging. Your disability has to be a long-term one, and it has to be serious enough to prevent you from working. The good news is, while many applications for disability are denied, it can be easier to qualify for these benefits as an older person than when you're younger. 

Don't claim your retirement benefits until you're sure 

Don't let your health issues prompt you to make a decision you'll regret when it comes to claiming Social Security retirement benefits. Take the time to explore whether filing for disability benefits instead could be a better financial move for the long term. If you're able to get a higher monthly income for the rest of your life, the extra effort involved in applying for SSDI will be well worth your time. 

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