Paul Ferraresi

Comments by Paul Ferraresi:

The Social Security Administration says that 20 percent of the nation’s population will be disabled for a year or longer before reaching age 65. Surprisingly, only 13 percent of American adults believe it’s “somewhat” or “very likely” they’ll be disabled.

This is according to research by the National Association of Insurance Commissioners:

• Fifty-six percent of people would be unable to meet expenses or pay their bills if disabled for a year or longer
• Forty-four percent said they had Long Term Care disability coverage, but, 71 percent of those said it was not coverage provided by their employer

So let’s look at the reality of things:

• You have a greater chance of being disabled rather than dying if you are under sixty-five
• Disability in many cases is a living death
• Most Americans have never read their company provided policy
• Most standard group employer provided policies state you will receive up to 66 2/3% of your compensation, up to a maximum of $X per month for 1 year. This is if you can not do your “own” occupation. After one year, if you can do “any” occupation…then, you do not receive benefits after 12 months

Let’s examine a few typical comments and observations I hear and discuss with my clients on this:

• But, Paul, my company benefit statement says… “Long Term Disability payments…to age 65.” Read the “darn” policy. Find out the definition of disability. If it is a standard group plan the definition of long term disability is the social security definition. Without exaggeration, you have to be in a state similar to Christopher Reeves (the movie character Superman) before he died to get payments
• So, after 12 months you are on your own
• Even during the first 12 months of payments the maximum you get in benefits is 66 2/3% of your bare compensation. If you can barely get by when you have 100% compensation, then how will you get by on only 2/3rds?
• Keep in mind that on the 66 2/3%, if your employer makes the premium payments, then, that is taxable income to you. Hmmm… so take off about 33% for taxes, and voila…you are living on about 40% of your old gross income
• Have you at least set up a 3 month emergency fund to help you get by? Better get started. This would be an emergency
• Not all medical treatments are covered by your health insurance when you are disabled
• Can you pay your portion of the company health insurance premiums out of your meager net disability pay
• After the one year of disability pay, in most cases, the payments cease or are substantially reduced. If you can do “any” occupation, then, payments cease
• Could you get by for 1 year with no money coming in? (say from month 12 to month 24 if the disability pay stopped?) Sure, you could bust into your IRA or 401k plans and get by. Remember, that withdrawal from a 401k/IRA is taxable, but there is NO penalty tax for the early withdrawal because you are disabled
• I educate all my clients to purchase a private disability policy that covers their “own occupation” and that does not kick in until the 24th month of disability. Why? The longer you wait for benefits to start the less the premiums. Also, you have your company policy that covers you for the first 12 months. Hopefully, your advisor has set you into a liquid position to covers year two. Then, your personal policy kicks in
• On a side note, I work with my clients to set up a non qualified retirement plan.(NQRP) This plan is used as a substitute for the personal disability policy stated above. Once the NQRP is built up large enough we dump the private policy, save the premiums and self insure

**The number one reason for home foreclosures is…disability.

• You have an 8 times greater chance of being disabled than you do of dying
• Disability is not just for “old people”. If you are active…ski, jog, bike, walk, drive a car or come out the house-oops, careful, plenty of people slip and fall in the house-get coverage now
• Do not ever lose your job if the only coverage for disability that you have is at work. Once you are let go…the coverage stops

On that joyful note…I end the write up. Sit down with a comprehensive planner and do a “dry run” on your situation to see where you stand.

Discipline or regret

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Notes by Paul Ferraresi:

Interesting Statistic

$328,049…minimum number of dollars in adjusted gross income to rank among the top 1% of individual tax payers in 2004

(Preliminary Data from IRS)