Paul Ferraresi

I am asked by blog readers and clients why I do not automatically include Social Security (SS) disability benefits in my calculations should one become disabled. I feel it can be misleading to allow anyone to anticipate the SS disability benefit when the requirements for receiving the benefit are over whelming. There are a number of hurdles that must be met to receive SS benefits. An applicant must meet ALL of the following requirements.

1. Be fully insured by: (1) accumulating 40 quarters of coverage or (2) accumulating at least six quarters of coverage providing that he has acquired at least as many quarters of coverage as there are years elapsing after 1950 (or, if later, after the year in which he reaches 21) and before the year in which he becomes disabled.
2. Work under Social Security for at least five of the 20 years just before becoming disabled, or if disability begins before age 31 but after age 23, for at least one-half of the quarters after reaching age 21 and before becoming disabled (but not less than six).
3. Be unable to engage in “any substantial gainful work that exists in the national economy”, whether or not such work exists in the area, a specific vacancy exists, or the applicant would be hired if he applied for the work (however consideration is given to age, education, and work experience).
4. Such inability results from “a medically determinable physical or mental impairment” which is expected to result in death, or which has lasted (or can be expected to last) for a continuous period of not less than 12 months. A special definition of the term “disability” is provided for individuals age 55 or over who are blind.
5. Under 65 years of age.
6. Have filed an application.
7. Have furnished required proof of disability.
8. Have fulfilled a five-month waiting period.
9. Accept state vocational rehabilitation services or have good cause for refusal.

Do you fully understand what is needed to qualify? It is complicated and tricky. Most people retort … “Oh, I will never be disabled”. Hmmm! You have an eight times greater chance of becoming disabled than dying before age 65, yet, you purchase privately a life insurance policy but not disability insurance. Disability is known as “living death”. Income drops and you cannot function fully. Remember, disability does not mean a wheel chair! Carpal tunnel syndrome is one of the largest causes of disability.

But, Paul, I have disability coverage at work. Have you sat down and read the details of the policy. Go back to the 9 point “simplified” information on the Social Security definition and requirements to receive benefit above. How does your company policy’s definition of disability compare with the SS definition. Most companies do have their definition of disability the same or very close to the SS definition. As you reread the 9 point summary you may ask … “then who does qualify?” A perfect example that would, and did qualify, was the late Christopher Reeves. (I so admired his courage and fight). Reeves disability did fit the definition of disability for SS and most other company group policies. Speaking of your company group policy … all of them are basically the same. The majority will pay for your benefits for only one (1) year. No, Paul, my print out says to age 65. Wrong! Read the policy! It will cover your “own” job for one year. After one year if you can do ANY job then you are NOT considered disable and not receive benefits. See definition #3 in SS 9 point summary as to what determines “Any”. So, if your company policy stops after 12 months since you no longer qualify, then, why do you think SS will kick it? It won’t!

Some other points of your company policy … You will receive a maximum of 66% of your base compensation up to a certain maximum each month. If you cannot presently get by on 100% of your income how will you get by on 66%?? If you say you can, then, I double dog dare you to try it for six months. Go ahead, save 33% drop in income each month … it will improve your financial well being. Let’s add another piece to the puzzle. If your company pays the disability premiums for you, then, when you receive benefits they are taxable. Let’s see by using an example. If you are earning 72,000 per year (6000 per month) and become disable. You would receive benefits of 3600 per month less about 1200 in taxes to give you a spendable monthly income of 2400 per month. (Do you own present income calculations to see the bad news).

I suggest, no am telling you to get some help from a professional financial advisor (we are always ready to help) in this complicated area. I always suggest for everyone to purchase a private disability policy for your own occupation that augments your company plan. Do not wait under the “horse” leaves the barn – to invest in this coverage. If you wait until after you are disabled and apply for coverage the insurance company will say “FAT CHANCE”.

Let me try to emphasize the probability of you becoming disabled versus dying before age 65 with a simple story. You are going hiking in Forest A eight times over the next month. On one of your eight trips you will be bitten by a rattlesnake. (This represents the chance of you dying). Next you are going to hike into Forest B 8 times over the next months. On each of the eight trips you will be bitten by a rattlesnake. This represents the probability of you being disabled versus dying before age 65.

Ah … discipline or regret.