Disability Before 65: How to Manage Forced Early Retirement?

​Think disability couldn’t happen to you? Think again. According to the Council for Disability Awareness, 1 in 4 working adults over the age of 20 will suffer a disability at some point in their life.1 There are a variety of health issues that cause disability, such as accident injuries, cancer, heart disease, or even joint pain.
 
Long-term disability can cause significant financial challenges. You could face medical expenses related to your disability. You may need to modify your home or even hire an aide to help with basic living activities. Most of all, though, you’ll need to replace your income so you can continue to live a comfortable lifestyle.

Disability isn’t as challenging if it happens at a traditional retirement age. But what happens if you’re forced to stop working in your 50s or even earlier because of health challenges? How do you replace your income and essentially retire years ahead of schedule?
 
Below are a few options for creating income after suffering a disability. As you will see, there’s no simple solution. The best strategy is to plan ahead and take steps to minimize any potential risk. A financial professional can help you develop a plan.

Social Security
 
Social Security isn’t just for retirement benefits. You can also file for Social Security benefits if you’re disabled. However, gaining approval can be difficult and time-consuming. Some people have to file multiple claims and appeals before they are approved. It’s possible that months or even years could pass before you start receiving benefits.
 
Social Security considers a few factors when making a disability benefit decision. One is whether you’re able to work. If you earn more than $1,180 a month in wages, you’re unlikely to be ruled disabled. Another factor is the severity of the disability. Social Security often reviews medical information and doctor input when making this decision. While Social Security could provide some income, it’s not a certainty that you would be approved.

Workers’ Compensation
 
It’s also possible that you could file for workers’ compensation benefits. In most states, however, you can only receive such benefits if you suffered your injury on the job. Also, as is the case with Social Security, the process for obtaining workers’ compensation can be difficult and time-consuming.

Generally, workers’ compensation benefits are based on the severity of your injury and your ability to generate income. You may need medical evidence or testimony from a doctor stating that you are unable to work. Again, this could be a source of income, but it’s not a sure thing.

Retirement Assets
 
Many people who are forced into early retirement end up taking money from their retirement accounts, such as their 401(k) or IRA. It’s an understandable decision. If you’re in need of income and have money available in a retirement account, it could be tempting to take a withdrawal.

There are a few problems with this strategy, though. One is that if you’re not age 59½, you’ll pay a 10 percent distribution penalty on top of normal income taxes. You could apply for a penalty exception due to your disability, but it’s not guaranteed* that you’ll be approved.
 
However, the bigger issue with early distributions is what they mean for your financial future. If you retire early, that means you’ll have more years of living expenses that you’ll have to fund in retirement. You’ll need your assets to last longer. But your distributions deplete your savings and eliminate any future growth. If possible, resist the urge to tap into your 401(k) or IRA early.

Disability Insurance
 
Long-term disability insurance is one of the most effective tools for minimizing disability costs. You pay premiums today but receive a monthly benefit as an income replacement if you become disabled in the future. Some policies will replace nearly all of your income, and many don’t require you to be fully disabled. You simply have to be too disabled to continue in your current occupation. A financial professional can help you determine whether disability insurance is right for you.

Ready to protect yourself against disability risk? Let’s talk about it. Contact us today at Binversie and Associates. We can help you analyze your risk and implement a plan. Let’s connect soon and start the conversation.
 
1http://disabilitycanhappen.org/overview/
 
 
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18185 - 2018/10/22