Welcome back to our series of blogs on Blind Spots! We all have Blind Spots, things that are potentially hazardous that we don’t even see, things that we should know, or have awareness of, but don’t. This series of blogs focuses on common financial Blind Spots that we see when working with our clients. Today, we want to talk about disability.
Disability is generally defined as a limitation in the capacity to work or the inability to work due to a temporary or permanent condition, illness or disease.
According to the Social Security Administration, one in four people who are 20 years old today will be disabled for at least one year before they reach the age of 67. According to the Society of Actuaries, if you are 35 years old today, there is a 48% chance that you will suffer a long term disability averaging over 5 years during your career. In fact, during your working years, it is more likely that you will face a disability than die.
The Blind Spot for most people is not being aware of the high probability that they will be disabled for some period of time during their working years. Most people just don’t understand that disability is a real risk. And when people don’t think a risk “will happen to them,” they often choose not to plan for it. The reality is, disability can be even more financially devastating than death. And the financial risk is that you lose income from work if you become disabled. So, how do you handle the financial risk?
First, acknowledge that it is in fact a risk. And the risk is not limited to people who are further along in their working years. Disability can and does happen to people early in their career. In some careers, disability has a higher potential for disruption. For example, an airline pilot might be on a medication that disqualifies him from flying; whereas an architect on that same medication might be able to work just fine. A surgeon with carpal tunnel syndrome might not be able to operate, but a psychologist might be able to perform his job duties very well.
Second, decide which of the four broad approaches to risk management that you will employ:
- Reduce the risk: Take steps to reduce the probability of disability. For example, one might quit smoking, get regular checkups and cancer screenings, eat well, exercise and be safety minded.
- Avoid the risk: Try to avoid putting yourself in a situation that creates a high probability of being disabled. Examples might be avoiding high risk jobs or jobs where even the slightest disability could result in an extreme loss of earnings.
- Transfer the risk: Purchase insurance so that you transfer the financial risk to an insurance company. As long as one qualifies, both short and long term disability insurance can be purchased.
- Absorb the risk: If you become disabled, simply use your savings to fund the lost income from not being able to work, no matter how long that might be.
Most risk management plans employ a combination of the above approaches. Your approach will depend on several factors: your age, savings, health, occupation, hobbies, group benefits at work and whether or not you are able to financially retire. At Second Half Strategies, we help our clients assess and calculate the financial risk and then work through the four approaches to develop a plan that is appropriate for them.
Remember, “you don’t know what you don’t know.” Without being aware of your financial Blind Spots, it is almost impossible to make sound financial decisions. At Second Half Strategies, we try to identify and help you uncover your various financial Blind Spots. Our Wealth Management process includes Planning, Guidance and Advice. By following our process, you should have the confidence to know that you are taking proactive steps to uncover and potentially reduce your Disability Blind Spots!
What process are you using to find and address your Blind Spots?