Retirement Options for Seniors with a Disability


These days, most people rely on retirement plans like IRAs or 401(k)s to fund their lives in retirement. These types of retirement plans provide a degree of financial security for older adults, and tend to be good wealth-building tools.

Yet what many people nearing retirement age don’t realize is how a disability — something that influences the ability to carry out activities, to do jobs, to do work — can have a significant financial impact on how financially secure they may be in retirement. Understanding your retirement options and how your disability may affect your retirement is crucial to your financial and overall well-being.

Types of Retirement Plans

There are several types of retirement plans; here are some of the more common, and some you may not be fully familiar with:

  • 401(k) plans are employer-sponsored retirement plans funded by a percentage of the employee’s salary and sometimes by an employer’s contributions.
  • Individual Retirement Accounts (IRAs) are retirement accounts funded by the income a person has earned through employment.
  • A SIMPLE IRA plan (SIMPLE stands for Savings Incentive Match Plan  for Employees) is set up by small business owners for employees. It lets employees and employers contribute to traditional IRAs and is an ideal start-up retirement savings plan for small employers not currently sponsoring a retirement plan. 
  • 403(b) plans are similar to a 401(k) plan, but they’re administered for employees of hospitals, municipalities and educational institutions.
  • A Simplified Employee Pension (SEP) plan allows only employers to set aside money in retirement accounts for their employees (employees can’t contribute to this type of plan). A SEP plan doesn’t have the start-up and operating costs of a conventional retirement plan, and it allows for a contribution of up to 25% of each employee’s pay.

Generally speaking, all these are tax-deferred plans, which means you delay paying taxes, but you don’t avoid them altogether. The money you contribute to the plan doesn’t get taxed when you contribute it, and it grows tax-free. But when you withdraw funds from a plan, that money is considered taxable income.

To encourage people to save for retirement, rules are in place to govern when and how someone can withdraw money from their retirement plan.

For the purposes of this blog post, here’s an important rule to remember: If someone withdraws money before age 59½,they’re subject to a 10% excise tax equivalent to the total distribution. However, if the person withdrawing the funds is someone with a recognized disability, they don’t have to pay the excise tax.

Likelihood of Becoming Disabled before Retiring

Most people don’t think it will happen to them in their lifetimes. But according to one study, disability rates increase steadily as people approach retirement, roughly doubling from age 55 to 64. The Social Security Administration estimates that one in four Americans will become disabled before they reach retirement age.

It’s important to note that disability isn’t always something caused by a stroke, cancer or a car accident. The estimates provided by the study’s researchers define disability using information about overall health status, depression, self-assessed work disability, functional impairments, and the ability to engage in basic activities of daily living.

How to Fund Retirement with a Disability

In the event of a disability, there are disability retirement options to help protect you in retirement.

Long-term care insurance

This isn’t life insurance, which pays a lump sum to your beneficiaries after your death. A long-term care insurance policy covers the costs of care while you’re alive that aren’t covered by regular health insurance. Whether you’re still at home or living in an assisted living or skilled nursing facility, this policy reimburses you for care you receive for a chronic medical condition or  disability.

But there’s a catch: You can’t buy long-term care insurance if you already have a debilitating condition. That’s why many people buy it in their mid- to early-60s while they’re still healthy. This type of insurance is an important part of a long-term financial plan because it covers many of the costs of care you would otherwise be paying out of pocket.

Social Security Disability Insurance

This pays benefits to you and certain members of your family if you’re “insured,” meaning that you worked long enough and paid Social Security taxes. In general, you’re paid monthly benefits if you’re unable to work a year or more because of disability. You should understand what a disability is in the eyes of the Social Security Administration.

Benefits usually continue until you’re able to work again. And if you’re getting Social Security disability benefits when you reach full retirement age, your disability benefits automatically convert to retirement benefits, but the amount remains the same.

A word about Medicare

After you receive disability benefits for 24 months, you’ll be eligible for Medicare. If you have permanent kidney failure requiring regular dialysis or a transplant, or you have amyotrophic lateral sclerosis (ALS), you may qualify for Medicare almost immediately.

Veterans Aid & Attendance Benefit

Veterans and their spouses who require the “aid and attendance” of another person might be able to receive this benefit. It will cover long-term care costs like assisted living, skilled nursing and adult day services. Though you don’t necessarily need to be of retirement age, there is a specific service requirement. To be eligible, you must have served at least 90 days of active duty, with one of those days being during a period of active war, including the Korean Conflict, the Vietnam War or the Gulf War.

Disability Retirement Resources for Older Adults

Even if you’re secure in how you’ll fund your retirement, you may struggle to find resources to make the experience of day-to-day living with a disability easier.

The Administration for Community Living lists a number of helpful resources that may assist you. Many states also have their own services to aid older adults with disabilities.