A disability at age 50 may force you into early retirement. This is unfortunate if you really enjoy working. However, your retirement plans often contain provisions allowing you to retire prior to your normal retirement age. These retirement plans may just save you from having to move in with relatives or dealing with financial hardship until age 59 1/2.
A disability presents many challenges. However, drawing retirement is not one of them. The IRS allows you to draw retirement benefits when you are disabled. This allows you to gain access to much-needed funds prior to your normal retirement age of 59 1/2. However, you also receive disability benefits from social security. These benefits provide additional income, which you receive when you're permanently disabled.
The IRS waives the 10 percent penalty normally associated with early withdrawals from retirement plans. Waiving this penalty means you get more money than you otherwise would get from your retirement plans. With social security disability benefits, you don't have to worry about where part of your retirement income will come from. Additionally, you may receive your pension from your employer before your normal retirement age, thus adding more income to your other benefit payments.
Taking your personal retirement savings early due to a disability may drain these funds before you had anticipated. You may end up with less total savings later on in life, when you need it the most. Your pension benefits, if any, may also be reduced to reflect your early forced retirement due to your disability.
You should try to delay taking money from your own personal savings, if you can. Allow this money to grow for as long as possible so that you maximize the amount of money you draw from it later. Using an annuity contract may also increase your total income amount. Annuities are insurance policies which guarantee you a payment by converting your savings to monthly income. This income payment continues for as long as you live, regardless of what your actual savings amount would have been.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- Department of Labor: What You Should Know About Your Retirement Plan
- The Social Security and Disability Resource Center: Social Security Disability and SSI Information