By Barry Lundquist, President of The Council for Disability Awareness.
The ability to earn a paycheck is nearly every American’s most valuable asset. Income is the source of all financial security for virtually every wage earner. Without an income, funding a retirement, saving for college or a child’s wedding, paying for a home or apartment, building an investment nest egg and even paying day to day bills is simply not possible. Despite the fundamental importance income plays in the financial security of America’s wage earners, roughly two-thirds of America’s workforce – 100 million wage earners – has no private income protection insurance.
Disabilities do occur, and in sufficient enough numbers that the risk cannot be ignored. No financial plan can be complete without addressing income protection. After all, about 1 in 3 American workers will miss work for 3 months or longer during their careers due to illness or injury; roughly 1 in 7 for at least 5 years. And virtually every American worker needs a paycheck, and many are stretched to even survive a couple of weeks if their paycheck suddenly stops.
Research studies by the non-profit Council for Disability Awareness (CDA) demonstrate that:
(1) Wage earners consistently underestimate their risk of becoming disabled for a sustained period of time. For example, in the recently released “Disability Divide” research report, 64% of the consumers surveyed thought their own odds of long term disability during their entire working career was 2% or less, but their actual odds are likely to be at least 10 times higher than that;
(2) Most breadwinners have not planned appropriately for the possibility of a sustained loss of income resulting from illness or injury. Disability Divide respondents said they would call on employer payments for sick pay and vacation as their top source of funds if they experienced a disability…even though such programs typically would only cover a few weeks at best. Other unrealistic sources of funds cited included loans, credit cards, other family members, or living on the other partner’s income.
(3) Most have little savings or other means to pay their bills should their incomes be interrupted for even a short period of time; 71% of Americans live from paycheck to paycheck. And one third of Americans have no retirement savings.
Here are some questions consumers should consider:
- How much are your monthly living expenses that would continue—or even increase—if your income stopped? (In most cases, discretionary spending for entertainment, recreation, etc. does not constitute a significant percent of the family or individual budget.)
- How would you pay your necessary monthly living expenses if your paycheck stopped? How long could you continue to pay your bills? One, two, or three months—or even longer? Did you consider an illness or accident typically raises living expenses from “out of pocket” medical expenses, like deductibles and co-pays, or from the cost of accommodations or custodial care?
- Do you know that the average long term disability lasts for 2 ½ years?
- Does your employer have a sick-pay plan or long-term disability program, or both? Are you participating? When would it start, how much would it pay you and for how long? Is there a gap between what the program pays, and what your anticipated monthly expenses will be?
- What if you deplete your personal and retirement savings? How will that affect your long-term financial picture and your dreams for the future?
For most working Americans, understanding the risk and consequence of disability, and the need to plan and protect one’s income, is the very foundation of financial planning, and the first step in securing long term financial security.
The Council for Disability Awareness
Consumer resources available from the Council for Disability Awareness:
Test your “disability IQ” with the Disability Awareness Quiz: http://www.disabilitycanhappen.org/chances_disability/quiz.asp
What are your chances of disability? And how long would a long term disability typically last? www.whatsmypdq.org
How can you reduce your chances of disability? Find out how you can help yourself stay healthy: http://www.disabilitycanhappen.org/reducing_chances/default.asp