The dangers of disability

August 14, 2015

In the past, when you went to a bar or restaurant for lunch, all you had to watch on television (that is, if they had a TV) was sports and sports reporting. That’s because sports is a medium that sells commercials, i.e., soap, deodorant, airline travel, etc.

Well, times have changed. The number of channels has increased exponentially and television now uses politics and finance, predominantly, to sell its commercials.

Financial planning covers a lot more than just investments, but the other topics of the trade aren’t as sexy, so they don’t sell as many commercials. Nonetheless, they are important.

The five tenets of financial planning are tax and cash flow planning; investment planning; retirement planning; risk management and estate planning. This column will focus on the area of risk management.

What is risk management? Risk management is the calculation of things that can happen to you. I used to be able to count these risks on one hand. Some of these risks are: you can get sick or disabled; you can die; your property can get damaged or somebody can sue you.

However, in the new normal (a catchy current phrase), we have to include another risk – a long-term care stay in a facility can deplete your assets. This column is about the dangers of disability.

Let’s begin with, “What are your chances of becoming disabled?”

According to the Counsel for Disability Awareness, “Almost 1/3 of Americans entering the workforce (3 in 10) will become disabled before they retire.” Interestingly, freak accidents are not usually the culprit.

Are you prepared if this happens to you? Probably not. If you’re like most Americans, you don’t have disability insurance, or enough emergency savings to carry you through 2 1/2 years. Yes, that’s the duration of the average individual long-term disability according to the Council For Disability Awareness.

Put another way, if you had a goose that laid a golden egg once a week, would you insure that goose? Of course you would. Well, if you have a job or a business that generates a weekly paycheck, you are the Golden Goose.

What are the most common causes of disability? As mentioned above, they are not freak accidents, nor are they injuries at work. The majority of disabilities come from illnesses like cancer, heart attack and diabetes. Back pain, injuries and arthritis are also significant causes. Most are not work-related, and therefore not covered by workers compensation. Additionally, lifestyle choices and personal behavior that lead to obesity are becoming major contributing factors.

Disability is already a widespread problem, and the threat is growing at an alarming rate. More than 30 million Americans between the ages of 21 and 64 are disabled according to the most recent U.S. Census. In 2010, 3.2 million disability claims were filed with Social Security.

According to the Center for Disease Control and Prevention, 25-plus million American lives are restricted by the effects of disability. Now, to get down to brass tacks. What are your chances of becoming disabled? The following statistics come from CDA’s Personal Disability Quotient disability risk calculator:

  • A typical female, age 35, 5’4″, 125 pounds, non-smoker, who works an office job, has some outdoor physical responsibilities, and leads a healthy life style, has the following risks: A 24 percent chance of becoming disabled for three months or longer during her working career; with a 38 percent chance that the disability will last five years or longer, and with the average disability for someone like her lasting 82 months. If this same person used tobacco and weighed 160 pounds, the risk would increase to a 41 percent chance of becoming disabled for 3 months or longer.
  • A typical male, age 35, 5’10″, 170 pounds, non-smoker, who works an office job, has some outdoor physical responsibilities, and leads a healthy lifestyle, has the following risks: A 21 percent chance of becoming disabled for three months or longer during his working career; with a 38 percent chance that the disability would last five years or longer, and with the average disability for someone like him lasting 82 months. If this same person used tobacco and weighed 210 pounds, the risk would increase to a 45 percent chance of becoming disabled for three months or longer.

OK, we have identified the problem. Come back next week for the solution.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann, CFP® is a registered representative with and securities offered through LPL Financial. Member FINRA/SIPC. Financial planning offered through Randy Neumann & Associates, a registered Investment Advisor and a separate entity. He can be reached at 600 East Crescent Avenue, Suite 104, Upper Saddle River, NJ 07458, 201-291-9000.