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Abstract
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.
Introduction
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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