The Path to Financial Literacy

path to financial literacy

Financial literacy is not something that just happens to you.  In fact, it is a skill that involves education and practice.  And while you might believe you are financially literate because you make and stick to a budget, in reality, it is so much more than that. On the path to financial literacy, having a budget is but one of the many steps in the right direction toward being financially responsible. But being financially literate involves practicing and building on the skills you need to make sound decisions with your finances over a long period of time.

If you are a young or newly independent adult just starting out in the world, you will likely feel daunted by the trend in today’s high cost of living, especially if you are entering the workforce and learning what it means to balance new income with your new expenses. In fact, a recent survey from Merrill Lynch/Age Wave finds that 70 percent of adults aged 18 to 34 depend on their parents financially—whether for everyday expenses, like cell phones and groceries, or even rent or mortgage.  Despite this help, the survey found three-quarters of millennials define adulthood as being on their own financially.  So if this is the case for you, certainly you’re not alone.  

How Can You Build Financial Literacy? 

The topic of financial literacy is a timely one – April is National Financial Literacy Month – and here we provide some concepts for you to think about on your journey to a more financially literate future.

Create a Budget Consider Disability + Life Insurance
Start an Emergency Fund Plan for a Home Purchase
Check Your Credit Protect Your Apartment or Home
Maximize Retirement Options

Understand Your Health Insurance

Learn to Invest

Create a Budget

A personal monthly budget allows you to plan for how you’ll spend and/or save your money each month and also keep track of your spending patterns. Creating a budget may not sound exciting, it’s an important exercise in keeping your finances in order.

With a budget, you can begin to prioritize your spending and better manage your money and financial future.

Start an Emergency Fund

Charging an unexpected expense on a credit card can be financially devastating as high interest charges accrue. And yet, only 40 percent of Americans say they could cover an unexpected $1,000 bill with savings. While that sounds high, you could easily be hit with a staggering bill in one visit to the emergency room, the vet or the car repair shop. Building an emergency fund cushions the blow so you don’t have to rely on your credit card—or your parents.

Check Your Credit

What you don’t know can hurt you…and your financial future. We’re talking about your credit score…and if you’re like half of Americans, you haven’t checked your credit score recently.

A credit score ranges from 300 to 850, and anything over 700 is considered pretty good. A high credit score is a great advantage when you want to take out any kind of loan, including a mortgage. On the path to financial literacy, you’ll have lower interest rates, which saves you money in the long run.

It takes time and effort to build good credit by consistently paying your bills, but you can decimate your credit fairly quickly by defaulting on loans or filing for bankruptcy.

A study by the Federal Trade Commission (FTC) found that about 20 percent of consumers discovered an error when checking their reports, and that number could be even higher considering the recent spate of data breaches. A strong credit score ensures you are offered the best possible rates for credit cards and mortgage and auto loans. Not sure how you measure up? See if your credit card offers a free credit report as one of its perks, or visit Annualcreditreport.com to take a look at yours.

Maximize Retirement Options

Even if you don’t plan on retiring for decades, it’s important to start saving now. If your employer offers a retirement plan, don’t wait to sign up.  Many companies even offer a match up to a certain percentage, and if you don’t contribute at least that much, you are literally leaving money on the table.

If your employer doesn’t have a 401k plan, you can look into a Roth IRA. Whatever route you take, make sure you’re putting away enough money so you’ll be comfortable in your retirement years.

While saving for retirement can seem futile when you have so many needs now, we promise that your future self will thank you—a lot—for saving early when you have the longest potential time to take advantage of compounding interest. Need some saving inspiration on your journey to financial literacy? Check out this chart that shows what happens to your money if you start saving early, compared to later. 

Learn to Invest

Once you have your emergency savings set aside and you’ve signed up for a 401k or Roth IRA, it’s time to start thinking about investments. Investments include mutual funds, stocks, bonds, and real estate—but be sure you don’t put all your eggs in one basket. This means you should diversify your investments. That way if some parts of your portfolio aren’t very profitable for a few years, your other investments will help make up the difference.

Consider Disability and Life Insurance

Think you’re invincible? Think again—the scary truth is that more than one-quarter of today’s 20-year-olds can expect to be out of work for at least a year due to a disabling condition before they reach retirement age. While on your path to financial literacy, consider getting disability insurance; it can help you pay your bills until you are back to work.

And while you especially need life insurance if anyone depends on you financially, it’s a smart benefit for anyone to have, since the policy can cover funeral and burial expenses. The next step on the path to financial literacy is to make sure to check with your HR department to see what your company offers in terms of disability and life insurance—and make sure you take advantage of this important benefit.

Plan for a Home Purchase

Along the path to financial literacy, you might find yourself considering the purchase of your first home. And while it is easy these days to be priced out of homeownership in many markets, in other places, a monthly mortgage payment can be close to the same amount as rent. (This calculator will help you determine the viability of buying vs. renting.) And if the common down payment of 20 percent sounds daunting, there are a wide array of programs that can get you into a home for substantially less. If you are relatively settled in your locale, it’s worth talking to a real estate agent and mortgage broker to find out the true cost of home ownership, as it’s still a tried-and-true avenue to long-term wealth.

Protect Your Apartment or Home

If you are not ready to buy, and you plan to rent, you might not think you need insurance, but you’ll regret skimping on it if your apartment gets broken into or your dog bites a visitor. Renter’s insurance will cover your belongings in the case of theft, fire, water damage, etc., and also can cover liability for a variety of scenarios—and it’s typically surprisingly affordable, averaging less than $200 a year.

If you own a home, chances are good that you probably have homeowners insurance as a requirement from your mortgage provider, but double-check your policy to ensure it covers as much as you think it should—such as the actual “replacement value” of your items, rather than just cash value, and short-term lodging in the even you are displaced.

Understand Your Health Insurance

PPOs, HMOs, HSAs…the alphabet soup of health insurance is enough to give anyone a headache. But if you don’t know what your insurance covers, you could be on the hook for an unexpected high bill…or you might be delaying services that would be covered. Some plans even offer free telemedicine services or other perks that you could take advantage of if you only knew.  Log in to your health insurance portal and click around a little to find out what’s covered and where…certain insurance only works at specific hospitals, for example. If you have any questions, don’t hesitate to seek out your HR department. They are there to help make sure you understand your coverage and limits inside and out.

As life changes occur,  you naturally grow, learn, and build upon your experiences. In this way, it is important to understand that getting on the path to financial literacy is an ever-evolving journey; it takes time and perseverance. And while you may find one concept relevant now, you might find another one more relevant to your life situation later.  Each part of the process is not wasted, only propelling you to a more secure financial future.


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Beyond Medical: How Supplemental Benefits Help Attract and Retain Talent

How Supplemental Benefits Can Help Attract and Retain Talent

In an increasingly competitive job market, employee benefits elevate companies in the minds of their current employees, as well as prospective workers. Below are some of the most important and sought after benefits for employees. Content here was provided to the Council for Disability Awareness blog by benefits expert Phil Bruen, VP, Group Life and Disability Products at MetLife.


1. Disability Insurance and Income Replacement
Just one in four of today’s 20 year-olds will become disabled before they retire.1 And yet less than half of Americans report they have enough savings to cover even three months of their living expenses.2 Providing an option for short- and long-term disability insurance offers employees a simple way to keep unexpected events from turning into financial disasters.

2. Supplemental Health Benefits
Today’s employees want and need a solid health insurance plan. But for most individuals and families, that’s only a component of their overall healthcare. For example, 53 percent of employees consider dental insurance a “must-have,” and 37 percent say the same about vision care. Other key offerings that employers can consider include hospital indemnity, critical illness, and accident insurance. All of these complement health plans, and provide employees with additional financial resources when they may need them most.

3. Retirement and Financial Wellness
Nearly three-quarters of employees report that saving for retirement is a priority. Nearly half of employees say they’re already concerned about outliving their savings, according to the 2018 MetLife research. Traditional employer-sponsored retirement plans certainly provide the financial security and savings that employees want. Additional benefits, like lifetime income solutions, life insurance products, financial planning, and education services work to strengthen overall benefit plans. They also give workers additional ways to prepare for retirement.


1 Disability Statistics, The Council for Disability Awareness accessed
September 2018: http://disabilitycanhappen.org/overview/

2 Chances of a Disability, Ibid, The Council for Disability Awareness updated March 28, 2018: http://disabilitycanhappen.org/disability-statistic/

Looking for more information on supplemental benefits? Join Phil Bruen and Carol Harnett as they discuss consumer strategies this open enrollment season on the CDA’s BlogTalkRadio.




Do You Know the Financial Implications Of Taking A Career Break? Five Questions to Ask Yourself

When it’s time to start a family, many parents-to-be are so focused on decorating the nursery and choosing the right car seat that they can overlook the life-altering impact a baby can have on their financial life. And we’re not just talking the exorbitant cost of diapers—we’re talking nearly 4 million dollars in “potential income.”

These startling figures come from an interactive calculator from the Center for American Progress that helps you see the impact of a career break based on your own situation. Suppose you’re a 28-year-old woman making $50,000 annually who has a five-year lapse. First, of course, you’ll lose $250,000 in wages, but that’s just the beginning.  In addition, you’ll lose an estimated $252,383 in wage growth and $219,671 in retirement assets and benefits, bringing you to a loss of $722,054. However, that figure hides an even more frightening loss in projected “potential income,” which comes from the fact that you’ll probably take a pay cut when you do return to the workforce, more than 7 percent, according to a survey from Payscale.

Of
course, there are considerations other than financial ones to consider when determining
if you should take a career break…and it’s a personal choice that each family
must make individually. But, here are some questions to ask yourself before
making a decision.

1. Can you afford it?

This seems basic, but it’s important since it can be tough to transition from two incomes to one. It’s best to take a trial run while you and your partner are both still working to see if you can and will forgo the extras that a second income provides. And of course during your experiment, you can bank that money to build up an emergency fund or bolster your retirement.

2. Do you
have access to adequate childcare?

This
is often the top reason that a woman will decide to take a career break—either
they can’t find adequate care, or they can’t afford it, given the bite that
childcare takes out of a budget. Obviously, it feels unpleasant to think that
the majority of your take-home pay is going directly to childcare, but that’s
exactly when you need to analyze the “lifetime costs” of that five-year break,
as illustrated above, to see how the actual cost of daycare might be a drop in
the bucket over the long haul.

3. Can you and your family still
retain benefits?

Many
families have a working spouse with coverage, but it can be an incredibly
expensive proposition if you are going to have to obtain your own benefits on
the open market. While the Affordable Care Act website can help you locate coverage,
remember that these premiums are for healthcare coverage only, and don’t include
supplemental benefits that a company often provides, such as long-term disability insurance and retirement savings.

4. Do you have skills that will
remain marketable?

Some industries, such as tech, change at an accelerating speed, meaning which
your skills could be obsolete quickly if you take a break. And other positions,
such as those in sales, might be easy to slip back into from a functional
standpoint, but you may lose the contacts you need to make your job successful.
Whatever your situation, you should put together a plan for how you can keep
your skills sharp through online learning or other educational opportunities,
as well as how you will maintain your network, so that it hasn’t atrophied if
and when you decide to return to the workforce.

5. Will you feel fulfilled without
your job?

Of course, society says that being a parent is the most important job—and it
truly is. However, many women find that staying home with a child isn’t all
they expected, and they can become lonely. If you do decide to take a break,
make sure that you have created a support system of other at-home parents to
allow you to have a social life, along with the support of a partner who
recognizes that taking care of a child is a job in itself. 

Raising a
child is about a lot more than dollars and cents, but if you are considering
taking a career break, it’s important to go into it armed with the necessary
information to make a decision that’s right for your family.




14 Cheap but Fun Ideas for a Valentine (or Any Time!) Date Night

Love isn’t free…that is, if you are trying to prove your love with an extravagant Valentine’s Day gift. In fact a survey from the National Retail Foundation found that Americans are expected to spend a record amount on Valentine’s Day this year…an average of $161.96, which is up 13 percent from the average in 2018.

Think quick: Where did that money go last year? We bet you don’t even remember because it was probably either wasted on an overpriced, mediocre meal at a crowded restaurant or spent on a “meh” gift like a stuffed animal or chocolates. This year, instead of spending money on stuff you don’t want or need, why not create some real memories with an activity that is both frugal and fun. Here are 14 choices we love.

  1. Get physical. Come on; we’re talking exercise. There’s not much that’s more romantic than working out with your partner—think about it; you’re in close proximity, you’re dressed down, and you’re doing something that will help you live an even longer life together. A class like yoga or Pilates can be a good choice with its relaxing combination of mindfulness and stretching, but you could also take a romantic stroll or go ice skating or roller skating. Don’t forget to hold hands during couples skate. 
  2. Cook at home. This is a no brainer…cooking together doubles as an activity and a meal. Since Valentine’s Day is the second biggest restaurant day of the year (after Mother’s Day), there’s no reason to go out with the masses when you can cook a perfectly fabulous steak or other luscious delicacy at home. 
  3. Dine out for dessert.  If you really want to eat out, your best choice is a sweet treat…you’ll spend far less than you would forking out big bucks for overpriced pasta. Less money, far more fun. Find a bakery that has your favorite desserts or go to the nicest restaurant in town and eat something decadent a deux, with a price tag that’s pretty sweet. 
  4. Sing karaoke. If there’s ever a night that calls for a power ballad duet, it’s Valentine’s. Find a local hotspot and sing your heart out to your beloved. 
  5. Go window shopping. Honestly just looking and trying on is half the fun. Go to a posh boutique or specialty store and indulge your inner fashionista by trying on clothes and shoes you’d never buy—and maybe would never even wear outside the dressing room. Or go to a thrift store and pick out comical options for your partner.
  6. See a production at a local community theater. Seek out free or low-priced local shows to have a Broadway-style evening at an affordable price.
  7. Get your paint on. Whether painting a keepsake piece of pottery or attending a “wine and paint” night where an instructor helps you create a masterpiece, getting arty together makes for a fun evening—and you’ll get to bring a souvenir home.
  8. Visit a museum. Fun fact: Many libraries have culture passes that offer free or reduced admission to local museums. 
  9. Babysit for a friend or relative. This maybe doesn’t count as the most romantic night ever, but you’ll feel good letting them have an evening out—and you can see whether parenthood appeals.
  10. Plan your dream vacation. Get on your devices and research a place you’ve always wanted to visit—or that you think your partner has always wanted to visit—and create an itinerary. Dare to dream.   
  11. Have a scavenger hunt. Make clues based on special places the two of you have been and hide them around town. Or if the weather is bad, take it indoors to a mall. 
  12. Participate in a trivia night. Many restaurants and pubs host trivia nights; make it a double date or join with some others and make a team for an information-packed night out. 
  13. Find a bar with free music. Check out the local arts paper to find a place or two that offers free music. Don’t forget to tip the musicians, though. 
  14. Huddle in with board games or a movie. Light some candles, open a bottle of wine…what more would you need? 




Retirement 101: Planning for your financial future

If you’re like many Americans, retirement planning may not be high on your “to-do” list. When life is busy and you’re shouldering the burden of looking out for yourself and your family, setting up a retirement plan can slide down the priority list – especially if you’re hoping it will somehow be easier in a year, two or more.

But if you look at the root causes of inertia behind retirement planning, it’s clear how the effects from your behavior can be significant.

Below are some insights to help you get on track and better understand the kinds of behaviors that can get in the way of planning for your financial future.

1. It’s overwhelming. Saving for retirement can feel open-ended and ambiguous, in large part because it’s difficult to predict just how much you’ll need. Adding to the stress are many hard-to-anticipate variables, including how long you will live and healthcare needs. The good news is there are on-line calculators that can assist you in determining what your future needs may entail.

2. We can’t see our “future selves.” Researchers have found that people struggle to identify with their future selves, according to a study published in the Journal of Marketing Research. It’s not just young people who have difficulty imagining how long they’ll live in retirement – older Americans also often underestimate how long their retirement nest egg will have to last. Increased life expectancy means we may live 20 or 30 years – or even longer – in retirement. The good news is that companies like Prudential Retirement now offer interactive games like an Aging App to help people better understand how the decisions they make today could influence their futures.

3. We procrastinate planning for retirement. Research shows that for many people, procrastination plays a big role in hindering retirement planning. On average, we spend two hours a day procrastinating. In our busy lives, it’s often easier to daydream about our future than it is to spend time planning for it. The good news is that if you haven’t begun saving for retirement, it’s never too late to begin. Try taking a small step forward and consider setting aside 1 percent of your paycheck for a retirement account. Or, if you already have a retirement account but you’re saving very little, increase your contribution by 1 percent.

4. Budgetary pressures. Families have other future needs to plan for, such as their kids’ college education or saving for a down payment for a home. Add in the immediate need to cover day-to-day expenses, and it always feels like it’s “the wrong time” to save for retirement. The good news is that there is a great deal of information available online to help with retirement planning. Take time to educate yourself and become familiar with the various tools that are available.

The push to make retirement planning easier

“It turns out that many financial companies and employers are acknowledging the psychological barriers that can get in the way of retirement planning,” says Harry Dalessio, head of full service solutions at Prudential Retirement. “Today, many employers have products and solutions to assist with student loan debt and that help employees set aside money for emergencies. Financial counselors are now available in many companies to discuss approaches to help get employees on the right path,” Dalessio said.

In addition, important innovations, such as automatic enrollment, where new employees are automatically enrolled in their company’s retirement plan, have led in many cases to plan participation exceeding 90 percent. Also, simplified products such as target date funds are making it easier for investors to benefit from savings products that are appropriate for each worker’s age and goals. Finally, innovations, such as the ability to use mobile devices and gamification tools, make it even easier to stay engaged.

“Even with these innovations, there is still ample opportunity to think bigger, and make retirement planning more accessible to employees,” says Dalessio.

The bottom line is that it’s easy to underestimate the importance of retirement planning. The good news is that with more tools and innovation, people may be better able to achieve the financial future they hope for as they grow older.




Americans agree: Financial planning isn’t fun but it is necessary

A new study conducted by Northwestern Mutual recently found that a vast majority of adults in the U.S. described financial planning as “not my favorite thing in the world, but [I] know it needs to get done like a medical checkup.”

The survey, called the 2018 Planning & Progress Study, is an annual research project commissioned by Northwestern Mutual and explores Americans’ attitudes toward money, financial decision-making, and broader issues impacting their long-term financial security.

When asked about their about their views on finance, only one in five of those surveyed – or 18 percent – said they are “excited and inspired, love to do it” when it comes to planning out their finances.

In addition, about 40 percent of respondents expressed a slew of negative emotions with regard to planning, including sentiments such as being “worried, nervous about confronting the financial details of my life,” they would “prefer not to deal with it until I absolutely have no choice” and they feel “frustrated, annoyed with my financial situation.”

There is one sentiment a majority of Americans agree on according to the survey – 70 percent of respondents said their financial planning needs improvement.

“People’s instincts are in the right place,” says Emily Holbrook, director of planning at Northwestern Mutual.

“There are pretty sizable numbers who say they either love to plan or do it because they know it’s good for them. Also, the fact that most Americans think their planning needs to be better is evidence that there’s a will to improve. We’re seeing high numbers of Americans who default to a position of avoidance or frustration and our message to them is to push through and get started–that’s often the hardest part.”

When asked what types of financial planner people are, nearly half of respondents said they consider themselves either “disciplined” or “highly disciplined” but the single most common answer was “informal.”

“A good financial plan should be flexible and adapt to your life, not the other way around,” says Holbrook. “It shouldn’t be approached as an overly rigid or static exercise. It should grow and change shape with every twist and turn that life presents. And it’s important to remember the aim of a plan is to allow you to live the life you want to live, not simply to demand sacrifice or delay your hopes and dreams.”

One in three Americans said they have not spoken to anyone about financial planning, according to the survey. And yet, a lack of planning is ranked among the top five obstacles to achieving financial security in retirement.

“Even if the intention is there, it can be hard to take action,” says Holbrook. “But we go back to what people told us in the study — they see planning like they see medical checkups. It’s not something to neglect. Even if you’ve never planned before, it’s not too late to get back on track. By doing so, people can take more control of their lives, make informed decisions, and begin to feel more financially fit.”

 




Why relying on SSDI is better than nothing, but far from optimal

By Ted Norwood, General Counsel and Director of Representation, Integrated Benefits, Inc.

According to the Council for Disability Awareness, half of those who don’t work for the government have some form of employer-paid disability insurance (short-term disability only, long-term disability only, or both STD and LTD). These benefits are important because 25 percent of today’s 20-year-olds will at some point miss a year or more of work due to medical problems.

For businesses, as companies become leaner, individual employees become more vital and more difficult to replace. Replacing an experienced employee is very expensive, and long term, losing employees is difficult.

Given that, an increasing number of employers recognize the value of employee well-being. In fact, many companies now recognize the value of caring for employees as people, not just assets.[1]

Providing private disability insurance benefits in the workplace is an important way to care for employee financial health. But, about half of workers in the private sector do not have these benefits. Instead, if they are unable to work for an extended period of time, they often must rely on the Social Security Administration’s Disability Income (SSDI) program—if they qualify—for income.

In this article, we will look at the advantages and disadvantages of the SSA’s disability program from an employer perspective. Since you have to eat your veggies before dessert, let’s start with the disadvantages of the SSDI program and then end on a high note.

Three Disadvantages of Relying on SSDI for Employee Disability Coverage

The three main disadvantages to relying on SSDI to provide disability insurance to your employees are the wait, the challenges, and the lack of good recovery resources.

The Wait

The wait time to receive Social Security disability payments is almost unconscionable. The average wait before your employee receives the first payment is 15 months. Many applicants wait two years or more.

During this long wait, employees relying on SSDI often have no income. Spouses may work, but even in the best cases, the lost income is often devastating. They may get food stamps or Medicaid in some places, but in others they may not. Even though the SSA does provide retroactive payments on its disability awards, the wait is so long that many claimants have lost their savings, liquidated retirement accounts, and have seen their personal relationships deteriorate.[2]

SSDI does help people, but the long wait creates problems for claimants. It is certainly not what a conscientious employer wants to see for their dedicated workers.

SSDI is Hard to Get

Qualification for SSDI is hard. Social Security does not offer an own-occupation definition of disability nor does it consider prior income.[3] For skilled workers, this makes qualification very difficult. In fact, most claimants need a lawyer to represent them during the application process. Without representation, the odds of receiving benefits are much lower.

The application process is often difficult to navigate and confusing. The SSA repeatedly requests the same information and requires completion of long forms. Given the high standard of disability, a misplaced word can hurt a claimant’s application, which already only has a one in three chance of receiving an award at the initial level.[4]

Not only does it take an incredibly long time to get benefits, it is also very difficult to qualify. Leaving your employees to rely on this Byzantine system is certainly not an advantage to a compassionate employer.

SSDI Lacks Rehabilitation Resources

SSDI has poor resources for vocational rehabilitation or job placement, and no resources at all for claimants during the wait for a decision. This makes it harder for people to recover and get back to work.

Because of the long wait, many claimants miss out on vital windows to improve their chances of recovery and return to work. By the time the SSA awards disability payments, many claims are permanent due to the effects of such a long layoff and the lack of rehabilitation resources.

Certainly, SSDI can provide income to your disabled employees, but relying on it leaves them with a long wait and long odds, making it less likely they will be able to rejoin your team or find alternative work.

SSDI is Not All Bad News for Employers

Although SSDI does not do much for employers on its own, it is certainly better than nothing. It does eventually provide Medicare and annual cost of living adjustments (COLAs) for disabled claimants.

Those are important benefits, as many employees lose their health insurance during the wait for SSDI. Annual COLAs help people with disabilities keep up with the economy. Every bit matters once workers are on a fixed income.

Despite its problems, the SSDI program is a successful program designed to help protect American workers. Still, there is one more major advantage SSDI provides to employers.

SSDI acts like a subsidy to group long-term disability insurance, making disability policies affordable and an excellent value.

Group long-term disability policies protect employees from the disadvantages of SSDI.[5]

  • These LTD policies usually start with an own-occupation period of two years, allowing the employee to receive benefits immediately.
  • Group LTD policies can be structured to pay higher benefits than SSDI does.
  • Group LTD policies have better opportunities to provide vocational rehabilitation and return to work services.
  • Plus, most insurers will provide a lawyer for claimants to assist with their SSDI applications.

Although claimants often cannot double dip LTD and SSDI, SSDI still provides them with health insurance and cost-of-living adjustments. These benefits are the real opportunity SSDI provides for employers.

[1] https://www.youtube.com/watch?v=or6YoXfHWSE

[2] https://www.nadr.org/news/377122/Four-Personal-Stories-Show-the-Effects-the-SSDI-Backlog-has-on-Peoples-Finances-and-Futures.htm

[3] https://www.ssa.gov/redbook/eng/definedisability.htm

[4] https://www.disabilitysecrets.com/advice.html

[5] https://www.consumerslife.com/EmployersCLIC/Products-for-Employers/Group-Long-Term-Disability-Insurance.aspx ; https://www.policygenius.com/disability-insurance/learn/long-term-disability-insurance-faqs/




When you hear the term ‘underinsurance,’ do you understand what it means?

By Bob Herum, Second Vice President, DI & GSI Sales, Ameritas

I picture the millions of working Americans who are employed, receive benefits through their employers, and yet, go about their daily activities without realizing the potential financial risk to their way of life. Specifically, I’m thinking of their income and what insurance they may have in place if they were hurt or became too sick to work—even for a few months.

Most working Americans depend on their income to pay their bills, yet few prepare for the devastating financial impact caused by temporary (or longer-term) illnesses and injuries. A third of employers in the U.S.—particularly large ones—provide a group long-term disability plan, however, few employees could describe the group plan they have through work or what it covers. Many workers assume the insurance they have through work or from social programs, like Social Security Disability Income insurance or worker’s compensation, will be sufficient if the need arises. Unfortunately, reality is likely much different.

Let’s consider an employee with traditional group long-term disability coverage through work. The employer usually pays some or all of the premium cost, which makes the benefit taxable and results in you receiving less money. We’ll also assume the plan design covers 60 percent of your “base earnings.” Base earnings typically don’t include variable compensation like bonuses, over-time, commissions or other employer-provided perks—leaving your additional income uninsured.

Here’s an example:

Base earnings $75,000 annually, or $6,250 per month.

60 percent of base earnings is $45,000, or $3,750 per month.

Assuming a 10 percent effective tax rate for federal and 4 percent for the state means that the $45,000 annual disability benefit is reduced to approximately $38,700, or $3,225 per month. I think it’s safe to say few people are aware of the impact of taxes on their disability insurance payments. The effects on an individual’s or family’s finances could be devastating if you needed to access your benefits.

This impact is even more of an issue when you have significant variable income not covered under the definition of the group LTD contract. Business owners, sales people and employees who are eligible for bonuses and/or commissions may find the group plan even more inadequate since many group LTD contracts do not include that additional income in the calculation of benefits.

Another issue that may affect the more highly-compensated individuals is the group plan “LTD cap,”which is the maximum amount of benefit payable under the plan. Smaller employers usually have caps of $10,000 a month or less. It’s important to know that a 60 percent plan is by its design is going to limit the covered incomes as follows:

Cap                               Salary Covered 

$10,000/month                  $200,000

$7,500/month                    $150,000

$6,000/month                    $120,000

$4,000/month                    $100,000

When employees rely solely on their group LTD coverage, the percentage of income replaced can be inadequate. A better strategy you may want to consider is to add individual supplemental disability insurance coverage because the combination of the two protects a larger percentage of your income by filling in the gaps left by your group LTD coverage.

In addition to understanding how your group LTD plan works (if you have one), it is important to also know about how income protection options available from other sources work. Two other common sources of income when you cannot work are Social Security Disability Insurance and worker’s compensation. These programs do not pay you benefits in all situations and the process to qualify for SSDI can be lengthy. While each is important and should not be ignored, the reality is neither program will most likely allow you to continue your current lifestyle if you need to tap into these programs.

The SSDI program provides disability benefits to those with significant impairments and uses the following criteria to determine if you are eligible for benefits.

The definition of disability under Social Security is different than other programs. Social Security pays only for total disability. No benefits are payable for partial disability or for short-term disability.

We consider you disabled under Social Security rules if:

  • You cannot do work that you did before;
  • We decide that you cannot adjust to other work because of your medical condition(s); and
  • Your disability has lasted or is expected to last for at least one year or to result in death.

If you are denied SSDI benefits you may file an appeal. This process can take several months to several years before a determination is made.

If you qualify for SSDI benefits, it’s important to know that your payments start after five full months of total disability. This is far less comprehensive than found in most group LTD plans, which normally provide an elimination or waiting period that normally includes partial disability and includes an “own occupation” definition of disability, followed by an “any occupation” definition, based upon your background, training or prior income.

In addition, SSDI provides a bare-bones level of protection. For example, someone meeting the annual income maximum for withholdings ($128,400 for 2018) would qualify for a $2,886/month, or $34,632 annually, which is 27 percent of their pre-disability income. As your income rises above the withholding amount, that percentage continues to reduce.

And, one final note: 85 percent of your SSDI benefit is also subject to federal income tax withholdings.

Worker’s compensation is another social program employees often think they can rely upon. It’s difficult to generalize about WC because each state program is unique. The primary purpose of WC is to provide benefits to workers who are injured or become ill on the job. These benefits may include income payments, medical assistance and vocational rehabilitation support.

Here’s the bottom line: Most employees would be well served by taking time to understand their income protection options and develop a plan from there. For employees who have short- and long-term disability insurance through work, I recommend asking your HR department for additional information about how the program works. A good first step is to ask for and review the group LTD booklet. This is usually available on your employer’s intranet site. If supplemental disability insurance is available through your employer’s benefit plan, strongly considered adding this coverage. You may be able to also take your supplemental coverage with you if you move on to another employer. Group LTD plans seldom are portable, and even if they are, they usually only continue for 12 or 24 months.

Having your own individual long-term disability plan may be the best investment in maintaining your lifestyle if you become injured or ill.




The basics of the Social Security Disability Income Program

By Ted Norwood, General Counsel and Director of Representation, Integrated Benefits, Inc.

The United States Social Security Administration offers two programs—confusingly named Social Security Disability Income and Supplemental Security Income—aimed at providing or supplementing the income of people who are unable to work.

SSDI (also called Title II benefits) provides disability coverage for individuals who have paid enough Social Security taxes. The second program, SSI or Title XVI, provides a smaller benefit for people who haven’t worked long enough to qualify for Title II benefits and established a financial need.

SSDI and SSI require the same medical requirements to receive benefits. However, SSI also requires claimants to pass a stringent means, or income, test that establishes the applicant’s need.

For the purposes of this post, I’m going to focus on the SSDI program. This benefit has greater relevance than SSI to the majority of employers and workers. In addition, this program frequently interacts with employee benefits, especially long-term disability policies.

But before I proceed, it’s important to remind you that I’m presenting basic information. If you have specific legal questions about SSDI, you should reach out to a lawyer. SSDI is a huge program with many regulations and significant administrative entities. My goal in this article is to focus on a few key elements that are important to employers and employees.

I find that most people know something about the SSDI program and many hold opinions on it already, but there is an abundance of misinformation. Before you can understand SSDI’s role in workplace absences, you must understand the program’s basics.

In many ways SSDI is like a private long-term disability policy that you have through the government. Like any insurance policy, the terms are important.

You must have worked to qualify

To receive SSDI benefits, you must have worked and paid the SSA’s taxes. If you are an independent contractor and don’t pay FICA taxes, you may not be covered. There are boring rules that you can access here if you want more information.

If you want to know if you are covered, you can simply contact SSA and they can tell you if you are insured and when your insured status would end if you stopped working.

You must qualify medically and vocationally

If you are covered, you may qualify medically for SSDI if you are:

  1. Not working
  2. Have limitations caused by medical conditions expected to last at least a year, and
  3. You are unable to sustain substantial gainful activity due to your limitations.

The SSA will deny benefits if they believe you can still perform a significant number of jobs that exist in the national economy or if you can perform past work (from the last 15 years).

Many Issues are surprisingly irrelevant to the SSA

Social Security does not consider income in its evaluation of disability. If a person who made a high salary can still perform lower income work, they are not disabled under SSDI. Likewise, a person who worked in labor, such as construction or manufacturing, may not be disabled if they are still capable of performing less demanding jobs.

SSDI also does not consider whether jobs are available or if an individual may or may not be hired for a job. The SSA only evaluates whether an individual could perform the functions of a job that exists.

The SSA considers problems finding employment to be addressed by unemployment insurance. But, to that end, applying for both unemployment and SSDI will usually have detrimental effects on the SSDI application. The SSA sees the receipt of both benefits as generally incompatible (with exceptions).

The SSDI Application Process

Individuals may apply for SSDI on the SSA’s website or at a Social Security office. A state agency will evaluate the application, review medical records and determine if the claimant is disabled under SSA’s rules. This usually takes three to six months with a 34 percent award rate.

If denied, a claimant can request reconsideration by the state agency. This essentially repeats the process, with a 13 percent approval rate.

If denied again, the claimant may request a hearing before an administrative law judge. There is a nine- to 27-month wait from hearing request to hearing with a national average wait of 17.3 months. The ALJ’s decision takes about another 60-90 days and ALJs awarded 47 percent of cases last year.

There is one more level of appeal within SSA – the Appeals Council – but the success rate is only 10 percent. After that, a claimant must file a civil case in federal court.

Obviously, it is a long process. This wait has a huge impact on the claimants. Waiting 30 months to get a payment is not uncommon. The SSA makes retroactive payments in a lump sum, but that is often cold comfort for claimants. The average wait time for all claimants is about 15 months before they receive a payment.

When Awarded SSDI

Disabled claimants receive an average monthly benefit of about $1300. There is a five-to-six month elimination period at the beginning of the period of disability.[The SSA provides annul adjustments for cost of living.

Two years after the end of the claimant’s elimination period, they will begin receiving Medicare.

There are some programs in place to support attempts to return to work, with mixed results. The SSA generally schedules continuing disability reviews (CDRs) every three to five years.

SSDI certainly has some warts, but overall American workers benefit tremendously from this program.

 




For millennials, app use and financial literacy don’t go hand in hand

A recent study released last week found despite the number of financial apps millennials are using, their personal finance management skills are severely lacking.

The report, released by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, examined the personal finance knowledge of millennials.

Titled “Millennial Financial Literacy and Fin-Tech Use: Who Knows What in the Digital Era,” the study utilized the TIAA Institute-GFLEC 2018 Personal Finance Index (P-Fin Index) to test millennials’ finance knowledge and found that 44 percent of millennials answered the P-Fin Index questions correctly, compared to 50 percent of the US adult population.

In addition, younger millennials (ages 18-27) answered 41 percent of P-Fin Index questions correctly, compared to 47 percent of older millennials (ages 28-37).

“The millennial oversample in this year’s P-Fin Index sheds a light on the use of mobile technology, and the impact that it has had on an increasingly influential generation,” said Stephanie Bell-Rose, Head of the TIAA Institute.

“As technology continues to develop ways to make our lives easier, it is clear that we cannot exclusively rely on it to guide us through our financial lives. Our research underscores the importance of financial literacy and its complementary relationship with fin-tech in producing good outcomes.”

Both older and younger millennials are hurting most in the areas of understanding risk and insuring, the study found. Understanding insurance, in particular, saw the greatest gap between younger and older millennials. Financial literacy is highest in the area of borrowing and debt management for both younger and older millennials.

The study also looked at how millennials use these apps to track their personal finances, as well as the effect of this fin-tech on financial outcomes.

About 80 percent of millennials use their smartphones to do things like pay bills and deposit checks, while 90 percent use their phones for things like tracking spending.

However, although apps make it easy to manage money, those who do via the technology don’t always make financially savvy decisions. Almost 30 percent of millennials who use their smartphone to make mobile payments report overdrawing their checking account, compared with 20 percent who do not make mobile payments.

In addition, one-quarter of those who track spending with their smartphone report overdrawing their accounts, compared with 20 percent of those who do not track spending via their smartphone.

“The low level of financial literacy among millennials speaks of the importance of equipping this large generation with the knowledge and skills that are needed to make financial decisions in the digital era,” said Annamaria Lusardi, Academic Director at GFLEC and the Denit Trust Chair of Economics and Accountancy at GW.

“This study shows that fin-tech users have different needs and characteristics, providing many opportunities for innovation for fin-tech developers.”