My good friend Will Rogers once said “There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.”
While we can all agree that learning is important, the method in which we learn makes all the difference. Being proactive about your financial situation is easier than being reactive and finding out the hard way. There are plenty of qualified financial planners who can assist with investments or advice on how to use life insurance to reduce your estate taxes. However, few of them really understand the importance of income protection. For those who would rather avoid unintentional self-inflicted electro-shock therapy, here are the basics of Social Security Disability Insurance (SSDI) and why you may be overestimating it’s worth.
The SSDI program was enacted as part of the Social Security Act of 1935. To make a long story short, it was designed in part to empower each state to reimburse a percentage of an individual’s lost wages if they were deemed unable to work. Sounds like a life-changing government benefit, right? If you qualify for disability coverage and are awarded benefits, it will certainly provide for basic necessities. But in recent years there have been economic pressures making it more difficult to qualify.
What Does it Take to Qualify for SSDI?
In order to qualify for disability benefits you must meet a set of guidelines. This includes two earnings tests and satisfying a strict definition of disability. If you haven’t worked enough (paid enough Social Security taxes) prior to your disability, you may not be eligible. Most people don’t have a problem meeting this condition. It’s the definition of disability that proves difficult to overcome. Per SSDI guidelines, benefits are paid to “people who can’t work because they have a medical condition that’s expected to last at least one year or result in death.” Whether you meet this criteria depends ultimately on how your condition affects your ability to work. Conditions that are severe, such as total paralysis, severe brain damage, or late-stage cancer, increase your chances of being awarded benefits. Other conditions, like migraine headaches, depression may be prove more challenging.
Can You Work?
Regardless of your condition, the SSDI claims examiners review your medical records and determine whether you’re able to work. They start by evaluating whether your medical condition would keep you from doing the tasks of your current or any previous job. If the answer is yes, you are disqualified from receiving benefits.
Then they will see if there is any work you would be capable of doing. If the answer is no, benefits could be awarded assuming other criteria are met. The key point is, regardless of your current job, to qualify for SSDI benefits you must be unable work in any capacity.
The reality is we’re all human and claims decisions are made using logic and judgement, both of which are never perfect.
Knowing what you know now, would you rely on SSDI as your only source of income protection? If you need more statistical evidence before you make your decision, keep reading. According to data from the Social Security Administration (SSA), only 32 percent of applications submitted were approved. Those who were denied benefits are entitled to an appeal, but unfortunately the average length of time to get a hearing is 600 days. While it’s difficult to determine how many appeals are ultimately approved, it’s important to know that regardless of your condition it takes loads of paperwork, medical records, and time to come to any decision.
Can You Afford to Wait?
Contrary to what Mick Jagger says, time is not on your side. Being struck with a life altering medical condition isn’t something you’ll find on anyone’s “to do list”, but the snowball effect it could have on your finances is substantial.
To put this into perspective, take a moment to tally your monthly net income (take home pay). Now think of all your creditors (people you owe money to) standing with their hand out every month. How much is left over? How much is in your savings? Do you even have a savings account? Is there a financial plan in place to prepare for an unexpected disability?
If you’re like most people, spending more and saving less is the new status quo. If you are currently relying on SSDI benefits as your only source of income protection, consider this, according to the SSA the average monthly benefit awarded in 2016 was $1,171. Yes, you read that correctly. The average payout is less than $300 per week. If you’re a homeowner this won’t even cover your mortgage and utilities. In fact, according to data provided by the US Census bureau, the average monthly cost to own a home in the United States is $1,492.
This figure includes the mortgage, real estate taxes, insurance, utilities, and various HOA and condo fees. With this logic you would be short $321 every month.
Think about the impact this would have on your ability to make your car payment(s), buy groceries, and pay your newly accrued medical bills. Even with help from SSDI, it would be extremely difficult to maintain your current lifestyle under these financial pressures.
These government programs, including SSDI, were created with the best of intentions. But the ability to continue funding these programs is constantly debated. Be proactive and research different ways to replace your income if you are unable to work. Don’t wait until after you’ve peed on the electric fence to ask for help, chances are there will be no one around.