Retirement Planning and Social Security Disability

Disability throws a wrench into many people's retirement planning. Three in 10 workers will become too disabled to work before they are ready for retirement, the Social Security Administration calculates. A study by Northwestern Mutual, which sells annuities and disability insurance, finds that a two-year disability at the age of 50 can reduce total investment accumulation by 30 percent at the retirement age of 65.

Applications for Social Security Disability payments rose 21 percent in 2008 and 2009 as jobs disappeared, according to Social Security Administration statistics.

Essentially, Social Security Disability expedites a recipient's regular Social Security payments. Once you qualify, you get the payment you would have received had you been full retirement age, 66 for most people not already collecting.

The average amount received is about $1,000 per month. To qualify, you have to prove that you are unable to work at any job for at least one year.

Sheri Abrams, an attorney who specializes in disability law at Needham Mitnick & Pollack in Falls Church, Va., says applying for Social Security Disability is the hardest part. According to figures she provides, nationally, about 75 percent of all applicants are denied initially and about 90 percent are denied at the first appeal stage -- reconsideration. Of those who won't take no for an answer, about 70 percent ultimately get benefits, but the whole process can take as long as four years and that's enough time to blow through all your savings and, maybe, your house.

Having a disability insurance policy other than Social Security is smart. If you are covered by a disability policy at work, that's good. If your employer offers to let you buy a group policy through payroll deductions, it's certainly worth considering. Generally, this is the least expensive self-pay option. If you're self employed, there are many policies available, but shop carefully -- prices and benefits vary greatly.

If you find yourself needing to file for Social Security Disability, many attorneys will take your case on a contingency basis, charging you 25 percent of the accumulated past-due benefit, which will be paid in a lump sum when you are approved. If you don't get good tax advice as well, you also may lose a large part of that lump sum to Uncle Sam.

None of this is good news for anyone's retirement planning, but forewarned is forearmed.

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