You’re Disabled. Now What? Financial Planning After Disability

Financial Planning

By Ed Carter, Owner of Ablefutures

19 million working-age Americans have a disability, and one in four of today’s 20-year-olds will experience a disability before they retire. While not every disability is permanent, some adults who become disabled will never return to work.

A permanent disability can lead to serious financial loss. A 35-year-old earning $50,000 a year stands to lose up to $1.5 million in pre-retirement earnings, while a 55-year-old with the same income will lose around $500,000. Those losses affect not only quality of life, but the ability to save.

Long-term disability insurance blunts the financial impacts of permanent disability by replacing lost income, but benefits usually don’t last forever. Most long-term disability insurance offers coverage for three to five years, although some policies extend until age 65.

With these challenges, how can disabled adults support themselves and save for the future? This guide will offer strategies people with disabilities can use to strengthen their financial health today and into the future.

Maximize Disability Benefits
Short-term disability insurance covers workers for the first three to six months after a disability, after which long-term disability insurance kicks in. Around the same time, a disabled worker becomes eligible for Social Security Disability Insurance. SSDI payments are based on lifetime earnings with a maximum benefit of $3,011 and average benefit of $1,258 in 2020. Since SSDI doesn’t limit a beneficiary’s unearned income, disabled workers can collect both private disability insurance and SSDI benefits.

Concurrent payments minimize the financial blow to a newly disabled worker’s household, but maintaining the status quo isn’t the best move financially. Rather than waiting to make lifestyle adjustments, disabled adults should cut costs immediately and save as much of their income as possible. Not only does saving early give investments more time to grow, but it will be harder to save after insurance payments stop.

Invest in Insurance
Disability insurance isn’t the only type of policy that’s needed. These insurance policies are key instruments for protecting the health, life, and family of an adult with disabilities.

Life Insurance
Life insurance can be harder to get for adults with a disability affecting longevity, but many people find a policy is well worth the cost. While some households are eligible for SSDI survivor benefits, not everyone qualifies, and benefits are reduced. Life insurance makes up for this lost income as well as paying outstanding debts, childcare, and other expenses in the wake of a death. While poor understanding of the benefits and costs of life insurance keeps some adults from buying coverage, enrolling is relatively simple with the option to calculate coverage needs and purchase a policy online.

Burial Insurance
A loss of income makes it harder to save for big-ticket expenses like a funeral. Inability to afford a funeral is a major source of stress for the family of the deceased, but burial insurance allows you to plan ahead for a funeral with small monthly payments instead. While rates vary based on age, health, and policy size, burial insurance policies start below $20 a month. With any type of life insurance, you want to check out providers before making a commitment. For example, Value Penguin shows Funeral Advantage reviews as well as pros and cons.

Health Insurance
It takes two years to qualify for Medicare after becoming disabled. In the meantime, disabled workers need access to health insurance. While it’s possible to continue workplace coverage up to 36 months through COBRA, premiums are unaffordable for many. Coverage through the healthcare marketplace may be a better option for many, especially those who qualify for the Advance Premium Tax Credit.

Work If You Can
Working isn’t an option for every person with a disability, but working part-time can make a big difference in a disabled worker’s financial security. People with disabilities can earn up to $1,260 a month without affecting SSDI benefits. Maintaining a low cost of living and investing the majority of earned income can set people with disabilities up for a much more comfortable future.

The financial impact of permanent disability is unavoidable, but there are things people can do to lessen its blow. While investing in disability insurance is critical, so is knowing how to use the benefits you receive. By learning how to maximize their money, adults with disabilities can create a more secure financial future for themselves and their families.