Understanding Disability
Because the possibility of being disabled affects everyone, disability is not a phenomenon exclusive to the elderly. Although often addressed in Elder Law planning, we believe it is important for younger people to be aware of it as well.
Defining Disability
Most people think of disability as wheelchair-bound immobility, blindness, or another similar condition. While the term encompasses these, that is not necessarily what we mean when talking about disability. It can be the result of an accident, but is much more commonly an illness that may take significant time to recover from. In short, disability is anything that limits or prevents you from returning to work at full productive capacity, or prevents you from being able to live independently without assistance. Depending on what the disability is, it may last months, years, or longer.
Impact on Working Years
According to the Social Security Administration, more than 1 in 4 individuals become disabled during their working years before reaching retirement age; of these, nearly half (or 1 in 8) disabilities last 5 or more years. Even an illness of only 90 days can have a profoundly negative effect. To illustrate, medical problems are considered a substantial factor in more than half of all bankruptcies and in more than a quarter of all foreclosures.
For these reasons, it is important for you to contemplate the impact disability could have even before retirement. If you have above average earning potential and many years or decades of income ahead, disability income insurance is usually worth considering. Even if your earning capacity is lower and you own few assets, you should still plan for the possibility of disability when you are younger. At minimum, this means you should name someone you trust to make decisions on your behalf rather than the courts deciding, and examine ways to cover basic expenses should disability occur.
Impact on Retirement Years
Upon reaching retirement age, the odds of becoming disabled only get worse. Nearly half of Americans will be unable to live independently for a period of time before they pass away. The effect this has can be catastrophic. All too often, people spend years and decades working, investing, and methodically building a legacy... only to see it mostly if not completely erased by the cost of long term care for a disability later in life.
Further, once you are in your retirement years, even if you are able to recover from an illness or other form of disability, you are usually unable to work or produce income at the rate you once could in your younger years, if you are able to do so at all. Sadly, stories of people losing most of the legacy they have accumulated towards the end of their life is not uncommon. Accordingly, you should plan for this possibility and never assume a life altering disability cannot happen to you.
A Word On Social Security Disability
Many people plan to rely on social security disability income (SSDI) should they become disabled. This may be a mistake, especially if you are only partially disabled. First, more than half of all SSDI claim applications are denied every year, meaning there is a high likelihood of not getting approved, especially if it is considered marginal. Second, even if you are approved, the process can take at least 30 days and as long as 2 years, meaning you may go without assistance for some time. Third and finally, even if you are approved and receive a benefit, the benefit is very low for all but those earning close to minimum wage.