Most people don’t think they’ll ever suffer a life-altering disability. However, a 20-year-old worker has about a three in 10 chance of suffering a disability before reaching retirement age, according to the Social Security Administration. As people’s age increases, so does the likelihood of a disability forcing them out of the labor market. The average age of people receiving Social Security disability benefits is 53.
Whether a severe disability progresses slowly or occurs suddenly, most people are not financially prepared for a health crisis that forces them to stop working. The results can be financially devastating, both to sidelined workers and their families.
“Many people underestimate the financial severity of a disability,” says Paul Gada, personal financial planning director for the Allsup Disability Life Planning Center. Allsup is a nationwide provider of Social Security Disability Insurance (SSDI) representation and Medicare plan selection services.
An important step Gada advises workers to take while they are still employed is to consider long-term disability coverage. These policies generally replace 50 percent or more of a worker’s salary and can coordinate with any Social Security disability benefits he may receive. Because the average SSDI monthly income is only $1,111, and can take two or more years to secure, private long-term disability insurance can be an important source of income. However, few employers offer private long-term disability insurance as an employee benefit, or they ask employees to pitch in to cover premiums.
Workers who have advance warning of a disability should take steps immediately to secure their finances. “If you are diagnosed with a chronic condition that will likely require you to stop working, you need to start planning for that day as soon as possible,” Gada says.
Once someone is forced to stop working because of their disability, there are still things they can do to protect and manage their immediate and long-term financial situation. Fast action is required, though.
“You need to focus on conducting immediate and ongoing financial damage control,” Gada says. “This includes having the mindset that every dollar you spend is a dollar you can’t recoup by working harder or longer because your disability means you’re no longer working.”
Among the steps to take quickly when a serious health condition occurs are:
Develop a financial plan. Establish a budget, prioritize expenses and identify how to spend down assets in the least harmful way. For example, avoid using retirement income, which may trigger tax penalties, and minimize credit card use to avoid high interest charges.
Cut costs and identify sources of assistance for living expenses. People need to cut discretionary spending and look at how they can reduce costs for necessary expenses, such as food, housing and health care. For example, many resources are available nationally and locally to help people, if they know where to look.
This includes neighborhood food pantries, federal energy assistance, housing programs to help avoid foreclosure and provide rent assistance, and pharmaceutical assistance to cover all or part of medication costs. Nonprofit associations also offer support, such as the National Family Caregivers Association and condition-specific groups such as the National Stroke Association. Allsup provides links to local and national resources on its website.
Pursue income sources. People with private long-term disability coverage generally begin receiving benefits three to six months after the onset of a disability, though this can vary based on the policy. Additionally, nearly 153 million workers are insured by the Social Security Disability Insurance program through FICA taxes they have paid.
Bankruptcies, foreclosures and other devastating financial hazards are too common among people with disabilities,” Gada says. “To help minimize these hardships, it’s important to apply for SSDI benefits as soon as possible and to seek representation to help navigate the SSDI process from the outset.”
Don’t let health care coverage lapse. Individuals who don’t have coverage through a spouse’s plan may be able to secure COBRA coverage through their former employer or purchase private insurance. Both are costly, however, and private plans can still deny coverage to people with pre-existing conditions. Pre-Existing Condition Insurance Plans (PCIPs) may be an option. However, a person needs to have been uninsured for at least six months before qualifying for a PCIP and these plans can be expensive. Individuals aren’t eligible for Medicare until 24 months after they begin receiving cash SSDI benefits.
Unfortunately, people with disabilities don’t have many good options for affordable health care coverage while waiting for Medicare eligibility,” Gada says. “However, to the extent possible, keeping health care coverage should be a priority so they can continue to get the medical care they need.”