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Early Retirement Benefits vs. Disability Benefits

If you become disabled in your late 50s or early 60s, should you collect early retirement benefits? Should you apply for Social Security disability benefits instead? What’s the difference between the two?

What Is Early Retirement?

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“Normal retirement age” used to be 65. However, in 1983, Congress changed that.

Congress passed the Social Security Amendments to gradually increase the retirement age. People born in 1938 or later fall into the new system.

Why the change? Better health and increased life expectancy for seniors made the increase necessary.

Normal Retirement by Birth Year

You can view the Social Security Administration’s retirement age calculator here.

Currently, those born before 1938 can retire at 65. Those born between 1943–1954 can retire at 66, and those born after 1960 can retire at age 67.

There are a lot of years missing in those ranges. If you’re born in 1956, for example, when can you retire?

People born in between the ranges of time listed above do not retire at a round number of years. Instead, they have had their retirement ages increased by a number of months.

A person born in 1956, for example, can retire at 66 and 4 months.

Early Retirement by Age

Regardless of when you were born, you can choose to retire early.

Early retirement is when you receive Social Security retirement benefits before your “normal retirement age.”

The earliest you can start receiving Social Security retirement benefits is 62 years old.

If you do elect to receive early retirement benefits, then be prepared for a hefty pay cut. You will only receive about 75 percent of what you would have gotten if you waited until your “normal retirement age.”

Work Credits: The Measure for Retirement and Social Security Disability

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To qualify for Social Security disability or retirement benefits, you must have a certain number of work credits.

You earn work credits by working and paying your Social Security taxes throughout your life. Typically, full-time workers earn 4 work credits a year.

Work Credits for Retirement

If you were born in 1929 or later, then you need 40 work credits to qualify for retirement. That means you need at least 10 years of work history and paying Social Security taxes to qualify.

Work Credits for Disability

To qualify for disability, the number of credits you need depends on the age you became disabled. Work credit requirements can range from 20 to 40 credits if you are aged 31–62.

In this way, Social Security disability acts sort of like retirement benefits for people too young to receive retirement. It’s a benefit for people who have been forced to “retire” due to their disability.

Can I Receive Early Retirement and Disability Benefits at the Same Time?

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Typically, you cannot receive both early retirement and disability benefits.

But what if you become disabled, begin receiving early retirement, and then decide to apply for disability benefits?

If you are approved for disability, then Social Security will determine when your disability began. This is known as your onset date.

For individuals whose disabilities started before their early retirement benefits, Social Security will retroactively make up the difference between your disability benefit and your early retirement benefit.

How It Works If You’re Approved for Disability

For example, let’s say you become disabled and have to quit your job in January 2014.

You begin receiving early retirement benefits of $750 a month, but then you decide to apply for disability.

Two years later, in January 2016, you are approved for disability. Your benefit is $1,000 a month.

Social Security knows you were on early retirement and looks at when your disability began. They determine that you were considered disabled as of January 2014 — right when you lost your job in the first place.

Therefore, Social Security will reimburse you the $250 a month extra you should have received through all of 2014 and 2015 ($1,000-$750=$250). You’ll receive $6,000 in what is known as back pay.

How It Works If You’re Denied for Disability

Remember, there’s no guarantee that you will be approved for disability later if you start taking early retirement now.

If you get early retirement, apply for disability, and then get denied, you will not receive any reimbursement. You will be stuck taking retirement at the early retirement rate even after you pass your “normal retirement age.”

For example, let’s say you turn 62 and begin receiving $750 a month in early retirement. If you had waited until you turned 67, then you would have received $1,000 a month.

Five years later, when you turn 67, you won’t receive that $1,000/month rate since you took early retirement. You’ll be locked into that $750/month rate for as long as you continue taking retirement benefits.

Help from an Indiana Social Security Disability Attorney

An Indiana disability attorney can help you determine which Social Security program is best for you. They can listen to your specific situation and outline the options you have.

Call Hensley Legal Group or contact us online for a free conversation about your potential claim.

Did you decide to file for disability benefits? Be sure to download our ebook, Eight Mistakes to Avoid When Filing for Disability.