Protecting Your Future Retirement Contributions in the Event of Disability
In this economy, some people often wonder, “How long I will have to work before I can retire?” You believe that you have all your protection lined up in the event something happens between now and when you have accumulated enough to retire. The average person has Car Insurance, Home Insurance, Life Insurance and Disability Insurance to guarantee that their lifestyle will not change in the event of a disaster.
To ensure you can have a comfortable retirement, you are putting the maximum amount (you can afford) into your Retirement Plan. So you are good to go, correct?
What Happens If You Became Disabled
But let’s think about what happens if you become disabled. You have Disability Insurance to protect your income. Your Disability Benefit is designed to protect a percentage of your income (about 60%) during your working years. This benefit will end at a normal retirement age (either 65 or 67). Since Disability Insurance is not considered earned income, you cannot continue to contribute to your Retirement Plan. Did you think about that?
If you cannot contribute to your Retirement Plan, how will you be able to save to retire?
For most of us, this is our primary way to save for a comfortable retirement — Tax Deductible, Tax Deferred Growth. If you cannot put money into your Retirement Plan, how will you be able to retire? If you are disabled for a long period of time, what will you do when your Disability Benefit stops?
Even if you are only disabled for a few years, that could put a major dent in your final retirement number because of compound inflation and time.
Preparing Ahead of Time
Disability companies have thought of this and have developed a special program that is designed to specifically protect the contributions you and your employer make to your Retirement Plan. Eligible plans include Money Purchase, Profit Sharing, SEP, ESOP, 401(k), 403(b), 457(b), SARSEP, IRA and Roth IRA, SIMPLE, Keogh, and some Non-qualified deferred compensation plans.
You can protect between $500 and $4,090 per month. You can even add an option to increase the benefit as you increase your contributions. So you can start small and grow. Another available option will increase your benefit annually when you are disabled. Once you are disabled for 6 months, the plan will start placing the amount you and your employer were contributing to your plan (up to the limit you purchased) into a Trust, set up specifically for you. The funds are invested per your direction. At age 65, the funds are distributed to you or can be transferred to an Annuity for Tax Deferred Growth.
Since you bought this Disability Coverage with After Tax Dollars, only the Gains from the Investments would be taxable, the Principal would be Tax Free. This is even better than most Retirement Plans, as one’s entire Retirement Plan distribution would be taxable since that was Pre-Tax Dollars. If you recover prior to age 65, you can keep the funds in the Trust or roll them into a Deferred Annuity for Tax Deferred Growth. If you die prior to receiving the funds, they would go to your estate.
Just imagine if you had to stop contributing to your Retirement Plan today, could you retire in the future?
We Can Help
For further information about this plan or questions about your personal insurance, please contact Brian P. Boak, CLU, LUTCF, at 201-837-1100 or Brian.Boak@singernelson.com.