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When it comes to saving your retirement savings, "working longer" is not always the right answer.
It is undeniable that staying at work has its advantages.
For example, employees aged 50 and over can carry a maximum of $ 19,000 over $ 401 (k), plus a $ 6,000 catch-up contribution this year.
In addition, pre-retirees can increase their retirement income by choosing to stay a little longer in the labor market. Every year that you delay social security until the age of 70, your benefit check increases by 8%.
But not everyone can continue to invest – and the security of retirement is compromised for those who limit their careers because of health problems.
People may not know that Social Security offers disability insurance, but getting through these payments is a long process.
Niv Persaud
Certified Financial Planner at Transition Planning & Guidance
Indeed, according to the Centers for Disease Control and Prevention, three Americans over the age of 65 years and older have several chronic health conditions, including diabetes, high blood pressure, and arthritis.
These diseases threaten the finances of the elderly when they are forced to reduce their hours of work or stop working altogether.
A recent study from the Mathematica Disability Studies Center found that newly disabled workers, aged 50 to 60, see their incomes decline an average of 50% two years after the onset of their condition.
"People do not think disability is a possibility – they think about short-term medical bills," said Josh Nelson, a licensed financial planner and founder of Keystone Financial Services in Loveland, Colorado.
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The Mathematica study examined 3,105 people born between 1931 and 1947 and followed them for about 20 years.
About 14% of participants experienced a health problem limiting work at the age of 59.
Another 12% of those surveyed said they had the condition at age 63 and 10% said they had experienced it at age 67.
The study found that people who experienced these health problems were more likely to leave the workplace early.
For example, at age 59, participants whose conditions affected their work were about 2.5 times more likely to quit than their healthier peers.
Although federal disability and retirement benefits help affected workers offset some of their lost earnings, they do not completely replace what they earned, according to the study.
Disability coverage
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The Social Security Disability Insurance provides disabled workers with financial support if they are no longer able to earn a living.
To qualify, you must have been working for at least 10 years. However, young workers may be eligible for benefits sooner.
Here's the catch with the social security disability cover: Qualifying for this is very difficult.
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The agency uses a five-question process to review applications, particularly to determine if the illness is so severe that it prevents a person from performing work.
Even if you qualify for a Social Security disability, you will not receive benefits until the sixth full month after the onset of your illness.
"People may not know that social security offers disability insurance, but doing so to get those payments is a long process," said Niv Persaud, Certified Financial Planner at Transition Planning & Guidance in Atlanta.
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No one ever plans to become disabled, but you can take some steps before a health emergency to protect your income.
It starts with the purchase of disability insurance, whether individually if you operate your own business or work through your benefits program.
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Standard disability coverage usually replaces up to 60% of your earnings for a given period.
Benefits generally last from three to six months for short-term disability plans, or up to five years or up to 65 years for long-term disability coverage.
Insurance companies also offer additional disability insurance to cover additional income needs that may otherwise not be covered by your standard disability policy.
An emergency fund can also help fill the gaps.
The way your products are taxed varies depending on who pays the premiums.
If your employer pays, the benefits you receive will be taxable.
Employees who pay for coverage using after-tax dollars will benefit from their tax-free benefits. However, if they pay premiums with pre – tax money, then their benefits are taxable.
Dig in the details
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Be sure to read the fine print of your plan. Often, people who file a long-term disability claim must wait 30 to 90 days before receiving benefits.
During this so-called "elimination period", you must use your emergency fund and your short-term disability benefits to cover your expenses.
In addition, know how your policy defines the term "disability". Some plans require you to be unable to perform the duties of any job in order to be considered disabled and eligible for payments.
The alternative is a "clean profession" plan, in which the benefits start to apply once you are unable to accomplish the tasks of your specific business area.
"Make sure you have a policy that defines disability as not being able to do your own job," Nelson said. "Any occupation makes it difficult to obtain these benefits."
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