Could Disability Force You to Retire Early?

​What’s your greatest financial asset? Your home? Your retirement savings? A business? It may be your ability to work and generate income. If you’re like many Americans, however, you may underestimate the risk associated with your ability to work.
 
According to the Council for Disability Awareness, 1 in 4 working adults over the age of 20 will suffer a disability that prevents them from working at some point in life.1 Think that figure is high? Consider the wide range of medical issues that often cause disability, such as cancer, heart disease and even joint pain.
 
Long-term disability can be financially catastrophic because it takes away your ability to earn income. That creates other financial challenges, like medical costs, debt issues and possibly even the depletion of your savings.

If you become disabled after you reach retirement age, you may be able to file for Social Security and simply choose to retire. But what happens if you become disabled in your 50s or even earlier? How do you replace your income?
 
Below are a few options for creating income after suffering a disability. As you will see, there’s no simple solution. The best strategy is to plan ahead and take steps to minimize any potential risk. A financial professional can help you develop a plan.

Social Security
 
Social Security is primarily a retirement income benefit, but it also provides benefits to those who are disabled. However, it can be difficult to qualify for benefits. Many people have to apply or appeal several times before their disability filing is approved.
 
Social Security bases the approval decision on several factors. One is your ability to work. If you earn income from a job, even a part-time one, your application may not be approved. Another factor is the severity of the disability. Social Security often reviews medical information and doctor input when making this decision. While Social Security could provide some income, it’s not a certainty that you would be approved.

Workers’ Compensation
 
If you suffered your disability on the job, you may be able to qualify for workers’ compensation. As is the case with Social Security, it can be difficult to win workers’ compensation benefits. Your employer may challenge your application, and you may even need help from a legal professional.

Generally, workers’ compensation benefits are based on the severity of your injury and your ability to generate income. You may need medical evidence or testimony from a doctor stating that you are unable to work. Again, this could be a source of income, but it’s not a sure thing.

Retirement Assets
 
Are you one of the millions of Americans using a 401(k) or IRA to save for retirement? If so, you may be tempted to tap into those accounts to fund your expenses due to disability. However, doing so may be costly and could put you in a difficult financial position in the future.
 
Your distributions from your 401(k) or IRA are likely to be taxed as income. Also, if you’re under age 59½, you could face early distribution penalties. You may be able to get an exception because of your disability, but that’s not a sure thing.
 
Most important, though, if you tap into your qualified plans early, you may deplete those accounts before retirement. You could outlive your assets and have little money to pay for bills and medical costs later in life. While it may be tempting to tap into your qualified accounts, try to look for alternatives so you don’t deplete your savings.

Disability Insurance
 
One of the most effective protection tools at your disposal is long-term disability insurance. You pay premiums today but receive a monthly benefit as an income replacement if you become disabled in the future. Some policies will replace nearly all of your income, and many don’t require you to be fully disabled. You simply have to be too disabled to continue in your current occupation. A financial professional can help you determine whether disability insurance is right for you.

Ready to protect yourself against disability risk? Let’s talk about it. Contact us today at Beacon Retirement Planning. We can help you analyze your risk and implement a plan. Let’s connect soon and start the conversation.
 
1http://disabilitycanhappen.org/overview/
 
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.
18185 - 2018/10/22