Tag: Social Security

When we picture the day we retire, it’s often at the end of a long road. There might be a party at work, or a celebration with friends. It’s a specific date on the calendar in a year of our choosing. This is the classic scenario, and certainly the ideal one.

Of course, sometimes people don’t get to retire exactly when they want. Sometimes, their financial situation just isn’t quite ready for it. It will take a few more years of working and saving for that day to finally come. That’s a possibility we all must prepare for.

But there’s also a third retirement option. One that almost nobody thinks about, because nobody expects it. A scenario that is less like a journey’s culmination and more like an interruption.

We’re referring to forced retirement. A retirement that occurs sooner than we expected.

When this happens, it’s usually because of an unexpected disability or illness. It could be ours, or it could be a loved one’s whom we now need to care for full time. Suddenly, we can’t work anymore, whether we wanted to or not. This is not a common scenario, but it can be an extremely scary one if it happens. It immediately presents all kinds of stressful questions. How will I replace my paycheck? Will I outlive my money? Will I have to give up all my dreams in retirement? Will I have to move?

Hopefully, this will never happen to you or anyone else in your family. But financial planning is all about preparing for possibilities, both positive and negative. According to the Disability Benefits Center, pre-retirees are twice as likely to receive Social Security Disability Insurance (more on this in a bit) at age 50 compared to age 40, and twice as likely again at age 60. Even a 20-year-old worker, according to the Social Security Administration, has a 25% chance of becoming disabled before reaching their full retirement age.    

So, let’s talk about some of the options people have when they are forced to take an early retirement due to disability or illness. Just keep in mind, these are options, not recommendations. Each of these should be discussed with a qualified professional to see what your best option might be if you find yourself in this scenario. Then, after reading this, you can file this message away under the label, “Probably won’t ever need this, but it’s nice to know in case I ever do.”

Social Security Disability Insurance

Social Security benefits, of course, are something most retirees rely on to some degree. So, for those forced into an early retirement, there exists Social Security Disability Insurance. This is a program for those who have earned enough work credits (typically by working for at least 5 of the last 10 years) and have a condition that will prevent them from working for a year or more.¹ After receiving benefits for two years, you will also automatically qualify for Medicare, even if you are under the age of 65 (though there is a delay of 24 months except in certain cases).²

(By the way, sometimes those who are disabled may still be able to do some form of work from home. If so, you may still qualify for SSDI if you earn less than $1,690 per month.¹)

Severance

Many employers will provide some form of severance compensation if you can no longer work. If so, some employers might offer the opportunity to receive it as either a lump sum or via monthly payments. Choosing a lump sum may be the way to go if you have immediate expenses or lots of high-interest debt. Getting those off your ledger as quickly as possible may be the surest way to a clear road later on. However, monthly payments are probably a better option if your highest priority is simply to replace your paycheck. (You may also want to avoid taking a lump sum if it would bump you into a higher tax bracket.)

Disability Insurance

Obviously, you can’t purchase private disability insurance after becoming disabled. But your employer may offer either short-term or long-term disability coverage as part of your benefits package. It’s worth checking to see if this is an option, and if so, what the costs and provisions are.

Early 401(k) & IRA Withdrawals

Under most circumstances, pre-retirees cannot make withdrawals from their retirement accounts before the age of 59½ without triggering a 10% penalty. But a forced retirement is no ordinary circumstance. The IRS allows for early, penalty-free withdrawals if you are ill or disabled and can no longer work. All you need is documentation from your doctor. However, before exploring this option, it’s important that you first have a…

Early-Retirement Withdrawal Strategy

While this isn’t a source of income, in some ways, it’s just as important. A proper withdrawal strategy determines when you should withdraw money every month, which sources you should draw from first, and how much you need to withdraw in order to meet expenses, minimize taxes, and live a fulfilling life. In the unlikely event that you or a loved one are ever ill or disabled, we can have this conversation as soon as possible so you can enter retirement with confidence.

Ultimately, retirement — whether expected or not — is something you plan for. Planning, of course, involves knowing your needs and understanding your options. So, if you or anyone in your family is ever forced into an unexpected, premature retirement, please let me know. Together, we can determine the best option so that retirement will be a blessing…no matter what form it takes.

¹ “SSDI Approval Rate by Age in 2024,” Disability Benefits Center, https://www.disabilitybenefitscenter.org/faq/approval-rate-old-age
² “Who can get Disability,” Social Security Administration, https://www.ssa.gov/disability/eligibility
³ “Medicare Coverage for People with Disabilities,” https://medicareadvocacy.org/medicare-info/medicare-coverage-for-people-with-disabilities/