This time of the year I start thinking about eggs: sunny-side up, over-medium, or scrambled. What kind of eggs am I referring to? I am talking about golden eggs because this is what everyone works toward during their lifetime. What are the "golden eggs" that I will have later in life? People often focus on the golden eggs (401ks, IRAs, etc.), but what attention are they giving to the Goose?
Why am I thinking about golden eggs and the goose? Well, I just had my birthday, which reminds me to go to the Social Security Administration, and find my latest Social Security statement. Social Security usually makes you think about what amount of money you can receive at 62, 65, 67, 70 years of age, once you retire. I don’t want to retire. I want to be here, engaged in my work as long as I possibly can because every, single day that I come into the office, it is truly a joy to be here.
But what happens if my goose is cooked? What happens if I become disabled? What happens with the lifestyle that I have become accustomed to? It’s not a rich lifestyle, but it’s a comfortable lifestyle that I want to keep. So, one of the first things that I look at is my Social Security statement. I am an employee and also the employer for contributions, and throughout my lifetime, I have put in about a $250,000 into the Social Security Trust Fund. In case of a disability, Social Security would pay me $2,841 monthly. That will not provide me with the lifestyle that I want.
The vast majority of employers also offer a disability plan to employees that typically pays out 60% of what your income was. If you are a governmental employee, that percentage is usually quite a bit higher. If you become disabled, you are typically required under the disability insurance program that your employer has to apply for the Social Security benefits First and as soon as possible. Here’s the problem: you usually won’t be able to receive both benefits. If you receive any benefits from the Social Security Administration, the benefits you would have received through your employer disability plan is typically reduced by the amount you receive from Social Security. You don’t get both!
That is why, several years ago, in addition to my Social Security Benefits, I decided to make certain that ALL of my income would be covered in the event of a disability. The policy that I purchased, in the event of a disability, would replace all of my income, income-tax free. As my income increased, I purchased an additional policy that would cover the difference from my original policy. This all would be above and beyond what Social Security would provide me.
If you become disabled, could you live on 60% of your current income? That could be as low as 40% of your current income because remember that many of those benefits are also taxable. However, if disability insurance is used correctly, these benefits can be income-tax free. If you become disabled, your life is already a mess, and the bills don’t stop coming just because you’re having a hard time.
Now, some people will tell me that if they were to become disabled and only had 60% of their income to live on, they would just adjust their life style to compensate. Well then, adjust your lifestyle today and start saving 40% of your income since it’s so easy. If I were to tell them to do that starting today, they would say there’s no way they could do that, and yet, that is their plan.
So, I have Social Security, and I have two additional policies that will replace my income in the event that I become disabled. In addition, if you are a business owner, there are additional disability policies that should be purchased on top of that! These are called “Overhead Expense Policies.” These policies are based on the owners’ disability status. If I become disabled, I still want all my team members to get paid, I still want the electricity bill to be paid, I still want the Internet to be paid, I still want heat in my office, and that’s what an overhead expense policy will cover. Twenty years ago, I purchased my first overhead expense policy. Because business overhead expenses increase, I have had to purchase additional policies over the years. I now have four policies just for my business overhead expenses. This is something every business owner should be aware of.
Let’s recap. I have Two additional policies to take care of my personal expenses in the event of a disability and Four policies to cover business overhead expenses, and this is all above and beyond what I have through Social Security. That’s Seven streams of income in the event that I have an accident or get sick.
Have you looked at your disability coverage? Are you spending all of your time thinking about the golden eggs (401K's, IRA’s, etc.) and not taking care of the goose? The eggs are important, but you don’t want your goose to be cooked in the event of an accident or illness.