The Age 50+ Financial Planning Gap We Need to Talk About

Some things are getting back to normal, and that feels pretty good. My bowling league started back up, and last Monday was my second time bowling in more than 2 years. As I got into position to release the ball toward the pins, I felt my knee buckle and pain shoot up and down my leg. My brain thinks it’s still 30, my knees know better. Injuries can happen to anyone at any time, but those that happen to older people can have far-reaching consequences. The reality is that as we get older, we are more prone to certain injuries and illnesses. 

There are benefits to getting older: after 50, many of us are in our prime earning years, and some have roles and employment that provide them with additional benefits. It's reasonable to think that employer-provided disability benefit would have increased to cover higher salaries and benefits, but in many instances that just isn't so. All employer-provided Group Disability plans have limits and gaps—by design--that impact higher earners more than they might realize. 

While retirement is still years away for me, it is in sight. I love the idea of retiring to Cape Cod and spending time by the ocean. Even if your dream isn’t as specific, you probably look forward to never using an alarm clock again, never battling traffic on a daily basis, having freedom and control over what you do on any given day. I know my savings rate, how much money I will most likely need, etc. This is a dream that I want to make a reality – and I don’t want anything to derail it. 

When you’re 30 years old, you have time. You can experience a major life change, a disability, etc. because there is time to make up a savings shortfall or to adjust plans. When you’re age 50+, there's a lot less time -- a major event could have a devastating impact on your plans. It would be worse if you believed your employer benefits would provide benefits they actually do not.

The top four employer-provided disability plan gaps:

• Most have maximum payouts, based on a percentage of salary up to certain limits, impacting the amount of benefits to higher earners. 
   
• Group plans have specific definitions of disability. You might not be able to do your specific job, but able to do something else, and that might limit payout of benefits. In other words, it will provide coverage at a percentage of your current salary, but after a period of time, the plan will ask if you can do ANY job. If you’re not able to do the tasks that commanded the higher salary, but you are able to sort mail, they might stop paying any benefit at all. This is not to mention the impact that such a change would have on your salary.
   
• You pay tax on any benefits from an employer-provided group disability plan. Most people would have a hard time surviving on 40% or 50% of their salary. Now, imagine further reducing that amount with income tax. (Note: you would not pay tax on the benefits received from the coverage that you personally pay for.)
   
• If you’re on long-term disability, you may not be considered a full-time employee, and certain benefits would be suspended, such as contributions to retirement plans. 

Your human resources department should be able to provide a summary of the disability benefits plan. You owe it to yourself to ensure that your dreams won’t be derailed because you were unaware of group plan provisions.

One hidden concern has to do with the ongoing funding of retirement plans. Most employers provide some level of funding or matching into qualified retirement plans, such as a 401K. If you’re disabled, you’re most likely not going to receive any employer contribution, and because you would not be eligible to contribute to the plan, you would not receive the employer match. Not only would you have to survive on half of what you were earning, but you’d also contend with your carefully crafted retirement plan going unfunded. 

Now, something personal: I was disabled for a year due to illness. By the time I could start working again (and I had to work part time for six months before I could return full time), I had lost everything and was left with a mountain of medical debt that took me nearly a decade to pay off. I can tell you that this is a real thing. It can happen. In fact, 25% of workers will experience a disability in their work life. 15% of workers will experience a disability lasting 5 years or more. Also, please trust me, being disabled is way more expensive than one might realize.

Your ability to earn income is an extremely precious thing. You made it to your peak earning years. You may have achieved milestones and promotions in your career. The skills and knowledge you’ve acquired have tremendous value. Like anything else of tremendous value, you need a plan so that you understand what will happen if it becomes damaged or destroyed. 

What can YOU do? First, you and I should talk. I will review your employer-provided benefits, run a projection of your income and savings need to get to retirement and identify any gaps. Then we will put together a plan to cover any gaps. If there are no gaps, I will tell you. If there are gaps, and you decide they’re acceptable to you, then that’s OK, too. I will only provide an unbiased view of your situation and help guide you to the right solution for you. 

Please be in touch. Let’s talk about this. Schedule a discussion here. Or give me a call at 704-717-8900, ext 115, or email me at frank.summers@ceterainvestors.com 

Do you have comments, feedback, or suggestions for other blog posts? I’d love to hear from you. Please be in touch.