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3 Ways to Manage Long-Term Disability Costs


Risk management is central to any financial strategy. It’s difficult to achieve your goals if you’re vulnerable to financial threats. A strong financial plan can help you minimize your vulnerability and protect your future goals.


However, you may be unprotected against one significant risk. It’s long-term disability. According to the Council for Disability Awareness, 1 in 4 working adults over the age of 20 will suffer a disability at some point in their life.1 While that statistic may seem surprising, consider that disability isn’t just caused by accidents. It can be caused by a wide range of issues including cancer, heart disease or even complications related to back or joint pain.


Long-term disability can cause serious financial challenges, primarily a loss of income. If you’re physically unable to work because of an injury or illness, you could miss out on years of income. You also may have limited ability to save for retirement.


Fortunately, you can minimize the risk of disability costs by planning ahead. Below are a few common ways in which people overcome financial challenges related to disability. A financial professional can help you develop and implement the right strategy for your needs.


Social Security Disability


Social Security is a valuable retirement resource, but it also provides income to those who can’t work due to disability. However, it isn’t easy to gain approval. In 2017 there were more than 2.1 million applications for Social Security disability benefits. Only 762,141 were approved.2 Many people have to file multiple claims and appeals before they receive a benefit approval. Some are never approved.


Even if you do qualify for Social Security disability, it’s unlikely to fully support your lifestyle. In September 2018 the average Social Security disability benefit amount was $1,198 per month.3 That’s more than $14,000 per year. While those benefits may be helpful, they likely won’t replace a full-time income.


Retirement Assets


If you’re forced to leave your career early because of disability, you may be tempted to tap into your retirement plans, like your 401(k) or IRA. These are tax-deferred accounts, which means your asset growth isn’t taxed until you take distributions. However, that also means you can’t take distributions before retirement age, or 59½. If you take a distribution early, you may have to pay taxes and a 10 percent penalty.


While your retirement assets may seem like a logical choice to cover your disability costs, there are a few issues with this strategy. The taxes and penalties can be costly, especially if you’re well under the 59½ age threshold. You may pay penalties for years if you plan on regularly tapping into your qualified accounts.


However, there’s also the fact that early distributions limit your future growth. When you take distributions, you reduce the amount of assets that are invested. That suppresses your growth, which means you could have fewer assets available later in retirement. Qualified plan distributions could help you in the present, but they could cost you in the future.


Disability Insurance


Long-term disability insurance can be an effective tool for minimizing disability risk. You pay premiums today, and the insurer pays you benefits in the future if you ever become disabled. A wide range of policy types are available, so you can find the right one for your needs and budget.


Many employers offer long-term disability insurance as part of their benefit package. Even if you have group coverage, it may not be right for your needs. Many group policies have maximum benefit amounts or require total disability in order for you to be eligible for benefits. An individual policy may provide more effective protection. A financial professional can help you find the right policy for your needs.


Ready to protect yourself against disability risk? Let’s talk about it. Contact us today at Upstate Wealth Management. We can help you analyze your risk and implement a plan. Let’s connect soon and start the conversation.


1http://disabilitycanhappen.org/overview/

2https://www.ssa.gov/oact/STATS/dibStat.html

3https://www.ssa.gov/oact/STATS/dib-g3.html


Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18148 - 2018/10/17

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*Securities and Advisory Services Offered Through Client One Securities, LLC Member FINRA/SIPC and an Investment Advisor. Upstate Wealth Management and Client One Securities, LLC are not affiliated.

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. 

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