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How Do Disabilities Affect Future Retirement Benefits?

Publication Date: October 01, 2008
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One-quarter of workers ages 51 to 55 develop work disabilities before age 62. Disabilities often force people to curtail their work hours, derailing retirement preparations. However, protections built into Social Security, including disability and spouse benefits and the system's tilt toward workers with low lifetime earnings, cushion the impact of midlife health problems. After other factors are controlled for, the onset of health-related work limitations between ages 51 and 61 reduces Social Security retirement benefits at ages 63 to 67 by only about 2 percent, much less than the impact on other retirement savings.


Workers who develop health problems in their 50s and 60s risk derailing their retirement preparations. Serious medical conditions raise out-of-pocket health care spending and sometimes force people to retire early or cut back their work hours, leaving them with less money to save for retirement. Early retirees must stretch their retirement savings further than those who retire later. Social Security, however, provides an important retirement safety net for Americans with work disabilities.

Health Shocks

Health problems become increasingly common as workers approach traditional retirement ages. One-quarter of workers ages 51 to 55 in 1992 developed work disabilities—defined as health problems that limit the amount or type of work they can perform—before age 62 (Johnson, Mermin, and Murphy 2007). The risks are especially high for workers with limited education. Nearly one-third of workers who did not complete high school developed health problems before age 62, almost twice the disability rate for college graduates. Women and African Americans are more likely than men and other racial groups to experience health shocks before age 62.

Work disabilities often force people to curtail their work hours or leave the labor force earlier than planned. Consequently, disabilities tend to reduce Social Security retirement benefits, which depend partly on how much people earn over their lifetimes. Dealing with a disability can also erode financial wealth, because people with health problems may have to dip into their retirement savings to cover their medical bills or other living expenses, especially if they are unable to work.

Health problems often shrink expected benefits from traditional pension plans, which still cover about one-fifth of private sector workers and nearly all government workers (Cushing-Daniels and Johnson 2008). Most traditional plans tie benefits to years of service and earnings received near the end of a person’s career. As a result, the value of future benefits tends to grow rapidly just before retirement age. People forced to stop working because of health problems can suffer substantial losses in pension plan benefits..

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