Articles

What are Disabilities Policies and Why Would You Need One?

What are Disabilities Policies and Why Would You Need One?

Jan 2021

The prospect of suddenly having to face life with a disability that limits your ability to work in the way you're used always seems unlikely. Disability is something other people face, maybe in old age, but not you. While disability insurance may seem unnecessary right now the facts give cause for the preemptive action. Approximately 12% of the total American population and more than 37 million Americans are categorized as disabled; more than half those disabled Americans are between the working ages of 18-64. Additionally, just over 25% of current 20-year-olds will become disabled before they reach retirement age.

Hopefully nothing ever happens that will limit your mobility or personal and professional productivity. But, in the off chance of an accident or the lasting effects of an illness you will be retroactively glad you invested in a disability insurance policy when you did.

Since health insurance is required to avoid a tax fee unless you can prove exemption, most people have an adequate health insurance plan to cover the unexpected broken bone or medicine for the seasonal illness. But, even if health insurance covers the costs associated with a serious injury or illness, it won't cover the lost wages associated with the costs of lost earnings in both the short and long-term. Like it's much better-known plan relative, life insurance, disability insurance serves as protector of your future income that could be lost due to disability-related causes. Disability insurance won't replace your salary, but it will provide an important buffer for financial stability.

So, how do you know if you should invest in a disability insurance policy? If you rely on your income to cover the costs of your basic needs, it's a good idea and as important as life insurance. That being said, not all disability insurance policies are built the same. Plans offer different levels coverage, some of which may not be adequate to your potential situation. Because you're planning for something that may or may not happen to various degrees of disability.

Shop Around

The first place to begin looking into disability policies is to look at your current insurance provider. For the majority of Americans, that provider is going to be their employer; 66% of nonelderly employees were offered employer-covered insurance health insurance and 56% of all households were covered by employer-sponsored health insurance in 2014.

Another option is individual insurance policies. You'll want to price shop as coverage differs, so even if your employer does offer disability coverage it may not be sufficient and you should consider individual coverage.

Short or Long-Term?

Before you drop regular premium payments on yet another insurance policy it's important to know what type of disability coverage you want to purchase. Long-term disability insurance is truly the better bet when it comes to gambling with health. Thankfully advances in medicine and technology are allowing humans to live even after severe illnesses or injuries, but that also means you can live for a long time without being able to fully work. In general, long-term disability insurance can cover around half to 70% of a salary, but that salary is set at the time the policy is obtained. As you gain promotions and salary increases it's wise to increase the plan value and to do so may require an annual physical or other requirement.

Be sure to zoom in on how the policy defines "disability". For some plans that includes categories like mental illness and others exclude categories such as injuries acquired from dangerous activities. The payout for long-term disability can look very different, ranging in five to 10 years of payout, to a pay out until 65-years-old.

Comparatively, short-term disability will cover more of a salary (around 100% of income for the initial payout) and is used in lieu of salary for the insured who misses up to six months or less of work. If the insured still cannot return to work after a certain term, coverage drops down to around 60% of the salary.

Insurance Assurance

Just because you purchase a disability insurance policy doesn't mean it cannot be revoked or changed. The two main types of policy assurances you'll see are "non-cancelable" and guaranteed renewable. If premiums are similar, non-cancelable is usually the best way to go as the insurance company can't raise the policy premium. It's essentially doubles the guarantee. Policies marked as guaranteed renewable mean that so long as premium payments are paid, the insurance company cannot drop it.

Occupation Allowance

Most policies you find will be designated as "any-occupation." This means that the policy owner must work when capable even if not to the same level as prior to the disability; this requires an analysis of the "gainful" employability of the policyholder. With any-occupation policies, long-term disability benefits are awarded if the disability inhibits the policyholder from finding and keeping work that will allow for at least 60% of the salary pre-disability. Another option, "own-occupation" largely benefits the policyholder with a high salary and highly skilled occupation. This type of policy allows for the individual to collect benefits until they can resume their occupation as it was before the disability arose.

Options Abound

Policies can also be written to include different "riders," or options. One important rider is "cost of living" (COLA). With COLA, a policy's total value increases as inflation does. Additionally, residual benefits make up the difference between old and new salaries following the diagnosis of disability, if the policyholder can indeed get a new job but one that's not up to the same salary as the one pre-disability.

You're not alone in looking toward disability insurance. More than 650,000 disabled employees received a collective $9 billion in long-term disability benefits from employer-sponsored group disability coverage, in 2012. Before you take any action, look into all your current and potential disability insurance plan options and speak with your trusted financial advisor.

  1. http://kff.org/private-insurance/issue-brief/trends-in-employer-sponsored-insurance-offer-and-coverage-rates-1999-2014/
  2. http://getmyltdbenefits.com/own-occupation-v-any-occupation/
  3. http://www.investopedia.com/terms/g/guaranteed_renewable_policy.asp
  4. http://www.360financialliteracy.org/Topics/Insurance/Disability-Insurance/Noncancelable-and-Guaranteed-Renewable-Policies
  5. http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
  6. http://www.forbes.com/sites/ashleaebeling/2013/09/24/5-myths-about-disability-insurance/#7e2c5c3c2f61
  7. http://www.consumerfed.org/pdfs/ltdbrochure.pdf
  8. https://www.trustedchoice.com/health-insurance/coverage-types/short-long-term-disability/
  9. http://www.daveramsey.com/blog/four-must-have-insurance-policies
  10. http://whitecoatinvestor.com/disability-insurance-to-cola-or-not-to-cola/
  11. http://www.investopedia.com/terms/r/residual-benefit.asp

tags: disability insurance, insurance, disability

What If I Can’t Save Enough to Reach my Retirement Goals?

What If I Can’t Save Enough to Reach my Retirement Goals?

Jan 2021

You just ran the numbers on your retirement and realized that you aren’t going to be able to save enough to make it happen. Don’t panic: There are still things you can do to better your situation, especially if you’re willing to be flexible about your plans and your lifestyle.

The first step is to determine exactly where you are. In retirement, you may have income from a number of sources:

  • Social Security
  • Pensions
  • Investment income
  • An inheritance
  • Earned income from a side hustle

Next, estimate the likely cost of your future monthly expenses: rent or mortgage, utilities, automobile payments and insurance, credit card and loan payments, food, health care (insurance plus out of pocket) and emergency repairs. A good way to capture these categories is to look at your credit card statements and checkbook and list everything you’re spending on now. If you haven’t kept track of this on paper, most online bank and credit card services offer easy access to your transaction history.

Leave out or lower your estimate for anything you won’t spend as much on when you’re retired (your commuting cost should go down, for example). Now, what about potential costs for travel, hobbies and other post-retirement fun? Will you set aside money to give to grandchildren or other relatives in the years ahead?

Once you have your monthly income and expense estimates, compare the two. Are you still coming up short?

If you don’t have enough income to cover your projected expenses, there are some things you can do. But first, there are some things you should definitely NOT do:

  • Panic.
  • Shift into higher-risk investments to try to capture higher returns.
  • Decide your head hurts, avoid thinking about it altogether and assume your health and career will allow you to work long enough to make up the difference.

Here are some things you CAN do:

  • Make catchup contributions to an IRA. The tax code allows workers over 50 to make extra, pre-tax contributions to boost their savings.
  • Re-think your lifestyle. Do you really need to live on a golf course? Maybe you could live near a golf course and be just as happy.
  • Take on a side hustle to create a little extra income. This could be something that’s been a hobby – tying fishing flies, restoring old cars, or knitting comforters. Or work a few hours a week at a friend’s business. Be aware, however, that your earnings may have implications for your taxes and Social Security benefits. Because the tax code governing what portion of benefits can be taxed is complex and subject to change, you should talk to an accountant or financial advisor well versed in that part of the code.
  • Do you have two cars? Maybe one would do. Or perhaps you can do just fine with a used model with a reputation for reliability and longevity.
  • Downsize. Move to a smaller house or condo, and if you’re single, maybe take on a roommate.
  • Consider relocating to a lower-cost area. The cost of living in Knoxville, TN is about 17% below the national average, and there are plenty of other places below the norm: Cheyenne, WY (-8%), Green Bay, WI (-10%) and Sherman, TX (-14%) are just a few.
  • Tap your home equity to pay expenses.
  • Consider a reverse mortgage. However, be aware that the reverse mortgage products offered by various lenders are wildly different in their terms and risks. Look at this very, very carefully before committing.
  • Delay taking Social Security benefits. Waiting until at least your full retirement age boosts your monthly check significantly; your monthly benefit will increase by about 0.67% for each month you delay past your full retirement age, and will add about 8% for each full year you wait until you reach age 70. Your full retirement age depends on your year of birth. Use the calculator on The Social Security Administration website to figure all of this out for your particular situation based on your personal earnings record.

But before you do any of these things, the most important step you can take is to talk to your financial advisor. Because they deal with the intricacies of the tax codes and Social Security every day, they can help you steer clear of landmines and set a course to that bright retirement you’ve been dreaming of.

Sources:

1. https://www.forbes.com/sites/investor/2017/06/09/what-to-do-when-you-havent-saved-enough-for-retirement/#368f06f06e20

2. https://www.aginginplace.org/are-there-taxes-on-social-security-for-seniors/

3. https://www.ssa.gov/planners/retire/1955-delay.html

4. https://www.kiplinger.com/slideshow/retirement/T047-S001-cheapest-places-where-you-ll-want-to-retire-2019/index.html

#save #retirement #future #wellcents

ACR# 336900 NFPR-2020-8

Frequently Overlooked Retirement Costs

Frequently Overlooked Retirement Costs

Jan 2021

Think you know how much you’ll need to retire comfortably? You might want to think again. According to the Schroders Global Investor Study 2018, which surveyed more than 22,000 investors from 30 countries, 15% of retirees lacked sufficient income to support a comfortable retirement. Moreover, the research found that people anticipate budgeting 34% of their retirement income for basic expenses but actually require nearly 50%. This disparity is understandable given the many unexpected changes that can occur during this phase of life. With that in mind, here are some costs that are often overlooked or underestimated when planning for retirement.

Taxes. No more employer means no one is withholding income taxes from your Social Security check each month (unless you specifically request it from the Social Security Administration)— and that can lead to an unwelcome surprise at tax time. Many retirees don’t realize that their Social Security benefits are taxable as income, so it’s important to plan ahead for any retirement tax bills. And you’ll pay taxes on withdrawals in retirement from your traditional (but not Roth) IRA.

Home Maintenance. Hopefully you’ll remain robust enough to continue to maintain your home yourself during retirement, but it’s often wise to put aside a little extra in case you need to make routine repairs or hire outside help for some home maintenance tasks you’ve been handling such as lawn care, laundry and general housekeeping.

Medical Costs. While many retirees are often pleased when they’re finally Medicare eligible, they’re often surprised when they learn that some costs are not covered under the government plan. For example, many dental, vision and other expenses (e.g., hearing aids) are generally out-of-pocket expenses and can run in the thousands of dollars. Also, Medicare premiums, deductibles, copayments, coinsurance and medication costs can add up once you’re no longer on your employer-sponsored health insurance plan.

Aging-in-Place Renovations. Many retirees want to be able to remain in their homes as opposed to receiving care in an assisted living or nursing home facility. Often, however, modifications to an existing floor plan to accommodate wheelchair access or a live-in caregiver become necessary. For example, you might require a walk-in tub or shower, grab bars or an entrance ramp to your home. While needs in this area can be hard to predict, additional dollars in your emergency fund to cover such renovations constitutes smart retirement planning.

Home Care. While we all hope to maintain our independence throughout our lives, the reality is that most of us will require some additional help with activities of daily living as we age. And the cost of this assistance isn’t cheap. Purchasing long-term care insurance is one way to plan for this expense, but that can be quite costly as well. Another option is relocating to a state with more favorable Medicaid benefits. Speak with your advisor about this essential part of your retirement plan.

Family Assistance. Many retirees want to be able to help out their children, grandchildren and extended family. You may wish to contribute to a college fund, treat your grandkids to a nice vacation, or help your children with a first home purchase. Try to anticipate these wants and budget for them accordingly.

Vehicle Replacement. For many retirees, retirement can last for decades. So it’s likely that you’ll need to replace your car at least once or twice if you continue to drive. This can be a significant expense to cover if not budgeted for ahead of time.

Inflation. Again, with many retirements lasting 20-30 years, it’s important to take inflation and the degradation of your retirement dollars’ purchasing power over time into account. This can be a complex cost to calculate, and it’s another good reason to consult with a professional.

Retirement is an exciting time of transition that brings with it many changes to your budget and lifestyle. Speak with your financial advisor to help you create a realistic budget that will anticipate as many of your retirement expenses as possible. Then, when the time comes, you’ll be in a better position to sit back and enjoy the adventure.

#costreduction #overlookedcosts #wellcents #financialwellness

Sources:

1. https://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-study-2018-people-significantly-underestimating-cost-of-living-in-retirement/

2. https://www.advisortoday.com/2018/07/17/people-underestimate-cost-of-living-in-retirement/

3. https://www.ssa.gov/planners/taxwithold.html

How Much Will I Actually Need to Retire?

How Much Will I Actually Need to Retire?

Jan 2021

There are many formulas for figuring out how much money you need to retire. Almost all of them can end up being wrong for a variety of reasons.

Let’s face it: We love fast food, and we love “fast-food” formulas - simplistic rules of thumb that we can use instead of actually thinking about a problem in depth. The retirement investing space is filled with these. Some say you need eight-to-12 times your current annual income or that you should have 25 times your annual expenses, 80% of your income at the time of retirement or - and this is a good round number - $1 million.

While thinking seriously about retirement finances is useful, for most people, these formulas aren’t going to come close to what your retirement actually looks like.

Taking Stock

To truly get comfortable with your retirement plan, the first thing you need to do is actually plan your retirement. How long are you likely going to live based on averages, genetics and behavior? What will be meaningful and enjoyable to you after you finish working full time? Do you plan to travel or pursue a hobby? Where do you want to live? And what’s your style - hanging out at a pricey country club restaurant every night, or cooking for yourself and staying in? Do you expect to go shopping at trendy boutiques weekly, or are you more of a “I bought these pants at the Gap five years ago, and they still look good” person?

In short, it’s your lifestyle and your length of life that will drive your financial needs once you’re no longer working. To gauge your needs, try this exercise. Carve out a couple of hours of quiet time. Turn off your phone, close your email and tell your family members to leave you alone. Better yet, maybe you and your significant other can take a long weekend in a place that’s comfortable, but not so fascinating as to be distracting, and do this together.

Think really hard about what “retirement” means to you. At a younger age, “not having to go to work” seems like what retirement is - and should be - all about. But if your mentality never evolves beyond that, then you can’t take full advantage of new opportunities. Instead, think about your bucket list - places you want to go as well as experiences you want to have.

Think about how you want to live your life and where. Living in a dense urban area affords you easy access to cultural amenities like concerts, festivals, museums and more. However, it may be more crowded than living in a suburb, exurb or rural area. If you do live in the city, you probably won’t need to drive a lot, and you may not even need a car at all with easy access to public transportation. Have you considered moving to another part of the country? Or even another country altogether? Tens of thousands of people do. Some hate it and come back, but many find it’s an adventure that keeps them engaged.

List things that would be meaningful to you. They may be volunteering for a charitable organization, mentoring others, or painting, gardening, beekeeping, birding or learning to play the zither.

Now your future is starting to come into focus. Extend the exercise by imagining what an average retirement day is going to be like: Where will you be? And with whom? Doing what?

How Much is Enough?

Once you have a fix on your future - the where, the how, the what and with whom - it’s much easier to put actual numbers on that lifestyle. Multiply that need by the number of years you expect to live - taking into account slowing activity as you get older - and you’ll come to a much closer estimate than any formula can provide. Throw in a little extra for increasing lifespans. Want to feel optimistic? Here’s what the Social Security Administration’s actuarial scientists say: “That mortality rates are found to continue to decline, at every age for which adequate data are available, demonstrates that no absolute limit to the biological life span for humans has yet been reached, and that such a limit is unlikely to exist.”

Write a brief overview of your conclusions and then schedule a conference with your financial advisor. With a clear picture of where you want to go, he or she will be able to help you build a solid map of how to get there.

Be optimistic: Retirement really can be some of the best years of your life.

#retirement #wellcents

Source:

http://www.ssa.gov/oact/NOTES/as120/LifeTables_Body.html

Evaluate How Much You Need for Retirement

Evaluate How Much You Need for Retirement

Jan 2021

Many people who are saving for retirement haven’t taken the time to figure out how much they may need when they retire. Financial planners who do pension consulting point out that saving without a goal could leave you in trouble when you reach retirement. After all, how do you know if you’re saving enough if you don’t know how much you may need?

Factors to consider - One way to start figuring out how much you’ll need in retirement is to look at how much you’re spending now. That will at least provide you with a starting point. Remember, though, your expenses will change after you retire:

  • Expenses that may go down include income taxes, mortgage payments (particularly if you downsize), utilities, and expenses for children. Also, you may save money on commuting expenses (including gas, tolls, car payments, and insurance) and other work-related costs like clothing.
  • Expenses that could go up include travel and entertainment costs and health care. While joining Medicare can reduce your expenses, you may need additional insurance and your costs may go up if your health declines.

Most financial advisors believe you’ll need about 80 percent of your current income in retirement to maintain your current standard of living1.

Review Your Income - You’ll need to assess any income you’re going to receive in retirement, such as Social Security, a pension, rent from property you may own, or other recurring income you receive.

Once you add up your income and subtract your expenses, you’ll know how much you need have saved by the time you reach retirement.

Tags: retirement planning, retirement, evaluate


Page 8 of 14

Contact Info

120 Vantis Dr #400,

Aliso Viejo, CA 92656


866-240-8591

info@mywellcents.com

© 2020 Wellcents. All rights reserved.