Think disability couldn’t happen to you? Think again. 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 There are a variety of health issues that cause disability, such as accident injuries, cancer, heart disease, or even joint pain. Long-term disability can cause significant financial challenges. You could face medical expenses related to your disability. You may need to modify your home or even hire an aide to help with basic living activities. Most of all, though, you’ll need to replace your income so you can continue to live a comfortable lifestyle. Disability isn’t as challenging if it happens at a traditional retirement age. But what happens if you’re forced to stop working in your 50s or even earlier because of health challenges? How do you replace your income and essentially retire years ahead of schedule? 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 isn’t just for retirement benefits. You can also file for Social Security benefits if you’re disabled. However, gaining approval can be difficult and time-consuming. Some people have to file multiple claims and appeals before they are approved. It’s possible that months or even years could pass before you start receiving benefits. Social Security considers a few factors when making a disability benefit decision. One is whether you’re able to work. If you earn more than $1,180 a month in wages, you’re unlikely to be ruled disabled. 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 It’s also possible that you could file for workers’ compensation benefits. In most states, however, you can only receive such benefits if you suffered your injury on the job. Also, as is the case with Social Security, the process for obtaining workers’ compensation can be difficult and time-consuming. 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 Many people who are forced into early retirement end up taking money from their retirement accounts, such as their 401(k) or IRA. It’s an understandable decision. If you’re in need of income and have money available in a retirement account, it could be tempting to take a withdrawal. There are a few problems with this strategy, though. One is that if you’re not age 59½, you’ll pay a 10 percent distribution penalty on top of normal income taxes. You could apply for a penalty exception due to your disability, but it’s not guaranteed* that you’ll be approved. However, the bigger issue with early distributions is what they mean for your financial future. If you retire early, that means you’ll have more years of living expenses that you’ll have to fund in retirement. You’ll need your assets to last longer. But your distributions deplete your savings and eliminate any future growth. If possible, resist the urge to tap into your 401(k) or IRA early. Disability Insurance Long-term disability insurance is one of the most effective tools for minimizing disability costs. 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 Binversie and Associates. We can help you analyze your risk and implement a plan. Let’s connect soon and start the conversation. 1http://disabilitycanhappen.org/overview/ *Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. 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 For past generations of retirees, retirement planning was a fairly simple process. Retirees could rely on Social Security and an employer pension to fund their expenses. They simply had to decide when they wanted to retire and file for benefits.
Today’s retirees face new challenges. Social Security is still a reliable source of retirement income, but it’s usually not sufficient to fully fund one’s retirement expenses. Pensions have been in decline for years, and few retirees can now count on a robust pension benefit. That means today’s retirees now shoulder much of the burden of funding their retirement with personal savings and investments. Guaranteed* income can provide stability and certainty to your retirement. A guaranteed* income stream may help you budget more effectively and make more informed purchasing decisions. It also eliminates the risk of outliving your money. An annuity can be an effective tool for creating guaranteed* retirement income. If you’re not familiar with annuities, you may be overwhelmed with the choices. Below are three of the primary ways to use an annuity to create guaranteed* income. It’s difficult to project exactly which type of annuity will maximize income because a wide range of factors are involved. However, having a full understanding of your options will help you make a more informed decision about how to fund your retirement. Single Premium Deferred Annuity (SPIA) A SPIA is a popular type of annuity that allows you to convert a portion of your assets into a guaranteed* stream of lifetime income. You contribute a lump-sum premium into the annuity. The insurer then converts that premium into income, usually paid on a monthly basis. The income amount is based on a range of factors, including age and interest rates. Generally, the older you are when you open the annuity, the higher your income will be. This is because the insurer uses life expectancy and actuarial tables to determine the income amount. The older you are, the shorter your life expectancy, which means the insurer will have a shorter duration to make payments. That increases the payment amount. A SPIA can be a highly effective way to create a guaranteed* income stream. However, it’s important to note that you lose access to the premium once it’s converted into income. There’s usually no liquidity with a SPIA. That’s why it’s always wise to keep a portion of your assets liquid and available in case of emergency. Fixed Deferred Annuity A fixed deferred annuity can provide income, but it can also be used for risk-free growth. You contribute a lump-sum premium into the annuity policy, and the insurer pays you a fixed interest rate over a predetermined period of time. The interest compounds in the policy on a tax-deferred basis. However, you can also choose to take the interest as an income payment. If you take the interest as a distribution, your premium won’t grow. Instead, the contract value will remain constant, and the interest will be paid directly to you. At the end of the interest rate period, the rate may be changed. However, most policies have a guaranteed* minimum interest rate so you always know the least amount of interest you could receive. A fixed deferred annuity could be appropriate if you want the flexibility to turn income on and off, or if you want to maintain access to your original premium. Variable Annuity With Guaranteed* Income Benefit Do you want the opportunity to increase your assets while generating guaranteed* income? If so, you may want to consider a variable annuity with something called a guaranteed* income benefit. A variable annuity allows you to invest your premium amount in the financial markets using subaccounts, which are similar to mutual funds. Since your premiums are invested, there is risk exposure and your contract value could go down. However, you can add a guaranteed* income benefit feature to protect your retirement income. This feature allows you to withdraw up to a certain percentage every year, such as 5 percent. As long as your withdrawals never exceed that amount, the distribution is guaranteed* for life, even if your investments decline in value. If your contract value increases, you may be able to lock in a higher withdrawal. All contracts and benefits vary, so it’s important to understand the specific rules and guidelines of your contract. If you’re looking for growth and income protection, however, a variable annuity with a guaranteed* income benefit could be right for you. Ready to plan your retirement income strategy? Let’s talk about it. Contact us today at Binversie and Associates. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation. *Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. 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. 18210 - 2018/10/31 |
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