While it’s possible as early as age 62, choosing to receive Social Security retirement benefits before your normal retirement age is penalized. The “early retirement penalty” can amount to a 30 percent reduction in your monthly benefit. And what’s worse is that the penalty is permanent. Thus, although your monthly benefit will change with cost of living adjustments, the initial reduction as a result of the penalty will continue even past normal retirement age. As a general rule, you should wait until your normal retirement age (66 or 67) or, even better, get an increased monthly benefit by delaying your retirement until age 70.
But what if you simply cannot work until your normal retirement age? If you are under 62, it is probably time to apply for social security disability benefits. These benefits are calculated using your normal retirement age. Thus there is no early retirement penalty.
If you are 62 or older you have a few more issues to consider because you can apply for both disability benefits and early retirement benefits. Applying for both programs has its advantages. First, you receive early retirement benefits each month while your social security disability claim meanders through the disability evaluation process. This process can sometimes take two years. Second, if you are found disabled and entitled to disability benefits before your early retirement benefits began, the early retirement penalty disappears. Not only will your monthly benefits be increased but you will receive money for the preceding months in which you were received less than your full disability benefit amount.
Unfortunately, there are disadvantages to applying for both programs. First, you could lose your claim for disability benefits. If so, you would be stuck with the early retirement penalty for life. Second, you could win your disability claim but the SSA could find you entitled to disability benefits after you began receiving your early retirement benefits. In this scenario there would be a reduced permanent benefit – although not as severe as the early retirement penalty.
One final item of good news is that if you are in your 60’s its going to be easier to prove disability. Remember that for those under age 50 the standard for disability is an inability to do any kind of work – not just the kind of work you have done in the past. (See Age: A Crucial Factor in your Social Security Disability Case). While the rules do relax at age 50, they relax even further at age 55. And at age 60, the battle is mostly won if we can prove an inability to do your prior work.
Managing Partner – Estates and Social Security Practice
Berman, Sobin, Gross, Feldman & Darby, LLP
481 N Frederick Avenue, Suite 300
Gaithersburg, MD 20877