Many people don’t realize the risk of becoming disabled as the result of an illness or injury at some point in their lives – or how it can affect their ability to work, to earn an income, and to provide for themselves, their families, or their businesses.
Most people know that a Disability Income Policy will provide you with replacement income if you are disabled and unable to work. This is reason alone that I recommend getting such a policy. A disability can quickly bankrupt your family.
But did you know that Disability Income Policies can also safeguard your retirement trajectory? Many people do not.
Don’t let a disability come between you and your retirement.
Disability Insurance is a way to help you continue saving for retirement if you become too sick or hurt to work. And while it’s not a retirement plan, nor a substitute for one, it can help replace an amount equal to the contributions that would have been made to your retirement plan if you had not become disabled.
Some Disability Income Policies insure up to 100% of your present contributions to your defined contribution plan, including employer matches (based on IRS limitations).
During a period of total disability, these policies will pay benefits into an irrevocable trust that offers different investment options so that you can select the option that best meets your retirement goals. The trustee, will invest (at your direction) the benefits received until retirement age, as defined in the trust. Trust proceeds are then distributed to you to help supplement your retirement benefits.
How do these plans work?
A case illustration
Edward, at age 35, begins making a $875 monthly contribution to a defined contribution plan, such as a 401(k) plan ($10,500 annually).
Normal Age Retirement
Edward makes 30 annual payments of $10,500. At age 65, his defined contribution plan totals $1,189,474.
Disabled with a Disability Income Policy
Edward becomes totally and continuously disabled at age 40. Prior to disability, Edward purchased a Disability Income Policy, and made five annual payments of $10,500 into his defined contribution plan. Beginning 180 days after disability, monthly benefits of $8753 are paid into a trust account. At age 65, the combination of his defined contribution plan and the trust account totals $972,425.
Disabled without a Disability Income Policy
Edward becomes totally and continuously disabled at age 40 without a Disability Income Policy. Prior to disability, Edward made five annual payments of $10,500 into his defined contribution plan. No further payments are made after disability strikes. At age 65, his defined contribution plan totals $421,861.
Please reach out to me for more information and I will put you in touch with a colleague in my professional circles who is an expert on Disability Income.
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Chris Whalen, CPA
(732) 673-0510
79 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
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