I retired in August of 2016 with 100% disability at the age of 58. My employer retirement age is 55. Is the retirement income on the 1099-r taxable?

When I enter the info and indicate that I am disabled (box 7 with the #3) my return drops by hundreds. If it isn't taxable should it drop my return and if so, is this due to it putting me in a higher tax bracket?