Financial Security Now and Later: Are Your Bases Covered?

When you think about achieving a secure financial future, retirement savings and investments most likely come to mind. But while retirement savings protects our daily necessities and desired lifestyle tomorrow, what will protect your necessities and lifestyle today?

Disability income insurance protects one's ability to earn an income - his or her most important financial asset - by guaranteeing monthly pay if one's ability to work is impaired by sickness or injury. Unfortunately, for many, insuring one's current income and lifestyle is never addressed? an oversight that can lead to eroded retirement savings, should work disability unexpectedly strike.

Ironically, even though they see the value in having insurance coverage, a number of Americans do not have protection should they become disabled. According to an ongoing Money Maladies survey by Northwestern Mutual conducted 2000-2003, while three fourths of Americans think it's important to have financial coverage in case one becomes disabled, 30 percent of Americans reported not having enough disability income coverage .

Work disability can lead to income disability
If you suddenly became disabled, how would you adjust financially? Many people mistakenly think they can simply scale back regular expenses to offset lost income during a period of disability. Surely, a disability may limit one's ability to leave their home and, as a result, transportation, recreation and entertainment costs will likely be curtailed. However, it's important to realize that most people's monthly living expenses remain constant during a period of disability - and perhaps even increase with the addition of medical bills and other related costs.

The fact is that having to deal with lost income during a short- or long-term disability is a distinct possibility for Americans. Consider the following statistics:

• There's at least a 60-percent chance at ages 30, 40 and 50 that one in a group of five people will suffer a long-term disability before age 65 .
• Between the ages of 25 and 55, for both males and females, the probability of becoming disabled is greater than the probability of dying .
• By the age of 35, people have a one in three chance of being disabled for more than 90 days during the rest of their working life .

While the prospect of disability is real - 18.1 million Americans reported a work disability in 2002 - people should be more concerned with the consequences of disability rather than the probability.

The link between disability and retirement
In many ways, considering disability income options and retirement solutions work interdependently to secure one's financial future. Each process helps replace a portion of lost earned income, meet daily living expenses and achieve a certain lifestyle.

The daily living expenses during disability and retirement are very similar; in most cases, each life phase requires payments for rent, mortgage, property taxes, housing maintenance, utilities, food, clothing, car maintenance, insurance, healthcare and installments loans. By planning ahead to cover these costs during disability and retirement, one's standard of living can be maintained.

Unfortunately, for some without disability insurance, the onset of disability will cause them to dip into their hard-earned savings earmarked for their retirement years and run the risk of jeopardizing their financial future.

Consider how long would your retirement assets last during a disability: First, calculate your monthly household expenses during disability. Now total your savings and retirement account balances and divide that number by your monthly household expenses. Based on national averages for annual expenditures and account balances, the average savings account and 401(k) balance would be depleted within 24 months6. Another way to look at it is that one year of total disability can devastate 10 years of retirement (or education) funding if you've been saving 10 percent of your annual income each year .

In the overall scheme of preparing for the future, the interdependent and complementary relationship between disability and retirement is key to building a secure future. Those who plan early to protect their income during disability and retirement will remain in better control if and when those times arise with minimal impact on their family's finances today and tomorrow.