Protect Your Retirement and Other Long-Term Plans

By Bob Herum, MSFS, CLU, ChFC, RHU, REBC

Editor’s Note: On July 28, 2015, I was struck by a car as a pedestrian. After the acute portion of my recovery ended, I met with my financial planner to discuss the potential implications to my retirement plan if I was out of work for an extended period of time, or if I couldn’t return to work at all. When we ran the scenarios that included tapping into my individual disability insurance policy (and possibly my long term care policy), we found there was no impact to my retirement plan. ~ Carol Harnett

You Are Not a Statistic

Reviewing your circumstances and considering protection from the economic impact a disability (whether for a short or long time) might have on your financial situation is important. But too often it’s ignored. This might be due to the way disability income insurance has been marketed. You likely have seen the statistics the industry has traditionally used to create fear and draw attention to your need. There is nothing wrong with statistics, but you are not a statistic. There is another way to logically address your need.

First, I want to thank Scott McCarthy, a regional vice president with Ameritas for some of his concepts and illustrations I’ve used to develop this blog post. He works with financial advisors and agents to help evolve our industry and client conversations.

Your Income Allows You to Save for Emergencies, College Educations and Retirement

Think about the income you earn from your job as a tool that allows you to achieve your financial goals. Your need to protect your income creates a need for another tool – disability income insurance. It works to protect your income, which helps fund and achieve a myriad of goals.

Reviewing your need for disability income insurance allows you to assess your personal need logically and dispassionately for this type of protection. I’m going to assume you have savings for emergency needs, your kid’s college education, and retirement. Now consider the exposure of relying on your income.

The Benefits of Doing a Financial Needs Analysis

Interestingly, the recent pandemic and its catastrophic impact to businesses and millions of working Americans likely increased your awareness of how events can put savings, investments, and future plans at risk. A rational review or “needs analysis” is important and the first step to determine your personal need to protect your income.

While you may have built a good financial foundation with your 401(k) and other retirement vehicles, you’re likely working with your financial advisor to mitigate your risk through diversification using stocks, mutual funds, bonds, savings accounts, etc. This is good and necessary, however, can this risk mitigation guarantee that your health and ability to continue to earn an income is protected? This is why you should do a “needs analysis.”

Most People Tap Into Retirement Savings When They Cannot Work

Unfortunately, most working Americans never do the analysis and, if a disability occurs, their only real option is to use some or all of the savings they intended for their long-term goals. Using savings and investments like your 401(k) or IRA will likely impact you for years into the future. For most, retirement savings are their default salary income continuation plan. However, this can be devastating to your long-term plans. Disability income insurance is a better alternative.

Let’s look at a hypothetical working adult:

• 40-year old professional

• $200,000 income

• Retirement savings balance of $400,000

• Annual savings of $10,500 (includes a 3% employer match)

• Annual inflation rate of 1%

• Savings increase at 2%

• Investment return of 5.5%

Asset Protection and Income Continuation Plan

This is where the solution is asset protection, and the tool to use is disability income insurance. Assuming a $3,000 annual premium, you have a way to provide downside risk mitigation at a very reasonable cost (approximately 1.5% of a $200,000 salary).

This approach then provides protection against depleting your savings and retirement accounts through either a partial or complete liquidation. What you now have is a relatively, small known cost outlay that can substantially protect your retirement savings, so you can be better prepared to handle whatever comes your way.

Look at the next chart, and you will see that this relatively small investment provides you significant protection.

As you can see, the expenditure of a $3,000 policy becomes a tool that allows your savings and retirement plan to work. While there is still some pain, you have reduced it significantly, and your plan can still provide for you and your family despite the bumps you experienced during your working career.

Isn’t it worth taking the time to do your own ‘risk analysis’?

_{Note: Ameritas Life Insurance Corp. and Ameritas Life Insurance Corp. of New York are not affiliated with the Council for Disability Awareness or its subsidiaries. The organization is a member company of The CDA.}

About Bob Herum

Bob Herum has written 11 posts in this blog.

Bob Herum, MSFS, CLU, ChFC, RHU, REBC, DIA, DIF, LTCP CDA President. Bob has over 30 years of experience in the insurance industry and has demonstrated success as a producer, a wholesaler and as a manager. Bob has been published in such magazines as The American College’s Wealth Magazine, National Underwriter, Life Insurance Selling, Broker’s World, NAIFA’s Advisor Today and Health Insurance Underwriters (HIU). Additionally, he has spoken at national, regional and state forums on a variety of disability and worksite sales topics and is a recipient of the W. Harold Peterson Lifetime Achievement Award by the International Disability Income Society (IDIS). Bob retired as a Colonel from the Army Reserves. He is a past President of the Columbus, Ohio NAIFA chapter, a two-time past President with the International Disability Society, past-chair of the NAHU’s Disability Insurance Advisory Group, and past-President for the Cincinnati Society of Financial Service Professionals (FSP). Bob is married to Teri and has one son, Nick.