Can You Live Without A Paycheck? – The Ins and Outs of Protecting Your Income: Part 1

While it’s only Monday, you may already have your mind set on Friday. And if you’re like many, you may also be thinking about your next payday. But think about this: what if that paycheck were to stop coming?

I’m not talking about being fired from your job. I’m talking about the possibility that you’re not able to do your own job, period. Many Americans consider their house, their 401(k), or their savings their most important asset. However, the reality is that you biggest asset is your earnings potential.

Think about all of your retirement and bank savings. How long might you be able to continue paying your bills until you’ve exhausted all of your assets? If you’re a few years away from retirement, you might be safe. But if you’re young, you may not make it more than a few months until you’re getting weekly groceries from the food bank.

It Can’t Happen To Me

One of the best resources I’ve come across on disability statistics is aptly named, the website for the Council for Disability Awareness. The data is eye-opening to just how common it is for average individuals like you and I to be put out of work.

What Are the Odds?

According to the Council for Disability Awareness, these are the odds.

  • Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.1
  • Over 37 million Americans are classified as disabled; about 12% of the total population. More than 50% of those disabled Americans are in their working years, from 18-64.2

As you can see, disability can happen, and does – more often that most people commonly believe. And half of disabled individuals aren’t even age 65.

How Long Does A Disability Last?

While the answer to that question certainly depends upon the nature of the disability, take the following into consideration:

  • A typical female, age 35, 5’4″, 125 pounds, non-smoker, who works mostly an office job, with some outdoor physical responsibilities, and who leads a healthy lifestyle has the following risks:
    • A 24% chance of becoming disabled for 3 months or longer during her working career;
      • with a 38% chance that the disability would last 5 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% 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, with some outdoor physical responsibilities, and who leads a healthy lifestyle has the following risks:
    • A 21% chance of becoming disabled for 3 months or longer during his working career;
      • with a 38% chance that the disability would last 5 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% chance of becoming disabled for 3 months or longer.

To put it differently, the average disability for a young, healthy individual lasts for six years.

I’d Get Social Security.

Statistics tell a different story. For those that are lucky enough to qualify for social security – which is half, mind you – their monthly paycheck is almost always well below their standard of living.

  • 65% of initial SSDI claim applications were denied in 2012.3
  • Can your family live on $1,130 a month? That’s the average monthly benefit paid by Social Security Disability Insurance (SSDI) at the end of 2012.
    • The average SSDI monthly benefit payment for males was $1,256
    • The average SSDI monthly benefit payment for females was $99316
  • At the end of 2012:
    • 3% of SSDI recipients received less than $500 monthly.
    • 46% received less than $1,000 per month.
    • 93% received less than $2,000 per month.

I Sit At A Desk All Day or Am In A White Collar Job though. I’m Safe.

You use your body more than you think. You use it every day to get you out of bed, and then to work. While you’re at work, you use it to type a proposal, to make a phone call, to talk to a client or prospect, or to get to a networking event.

Ever try to use your body to do all of those things when you have the flu? If you think that’s bad, now imagine trying to do all of those things if you have cancer. My twin brother received Chemotherapy at age 18. It zapped his energy.

The point I’m trying to drive home is that it’s not just a car accident that can take you away from your job:

According to CDA’s 2013 Long-Term Disability Claims Review, the following were the leading causes of new disability claims in 2012:

  • Musculoskeletal/connective tissue disorders (28.5%) *
  • Cancer (14.6%)
  • Injuries and poisoning (10.6%)
  • Mental disorders (8.9%)
  • Cardiovascular/circulatory disorders (8.2%)

What’s more: approximately 90% of all disabilities are caused by illnesses, not accidents.

Maybe I Should Review My Disability Coverage.

You should definitely review your disability coverage. Before you do, you’re going to want to the difference between a good policy and a not-so-good one. For that info, come back next week for Part 2, and I’ll tell you everything to look for in your current policy so that you can answer these questions and more:

  • How long would I have to be disabled until I got paid?
  • When is a disability policy taxable?
  • If I could do another job, would the insurance company still pay me?
  • What if I can keep doing my job, but only part-time?
  • What are the things I should look for if I’m shopping for a personal policy?

How Second Grade Math Once Taught Me an Important Life Lesson

When I was a kid, I panicked a lot. About little things. Well, at least, they seem like little things now. But at the time, they were huge, and important. They were critical. And my anxieties about them made me obsessed with the idea that they had to be perfect. Because if they weren’t, the results could be catastrophic.

Arithmetic Developed Daily, Grow Publications.

One memorable example of a time that I allowed my anxieties to take control was when I was in the second grade. One of the weekly assignments I had was on small, three by five piece of paper, titled “A.D.D.”, which stood for Arithmetic Developed Daily (I wonder if they’ve changed the name by now.) The teacher made copies, cut them out each week, and handed them to all of the students. Usually, I found them pretty easy. But one particular A.D.D. assignment had a problem I could not solve. I stressed about getting it done and feared seeing red ink if I got it wrong. It stressed me out so much that I faked being sick, and stayed home the day it was due.

What was the math problem? Well, it’s been 23 years now, so I don’t recall. Even if I did, though, I’m sure we’d both be laughing to ourselves about how silly I was to get worked up over an elementary math problem.  And it’s not surprising that what seemed like a huge deal didn’t impact my ability to graduate from high school, then graduate from college.

The funny thing is, little events camouflage themselves as big ones in the money world, too. As of this writing, the United States Government has just shut down. Thousands of jobs stand to be furloughed unless our government can get its act together and come to an agreement. But we’ve been here before. In 2013, budget stalemates led to a 16 day shut-down. What impact did that have on your 30 year financial plan? I think we both know the answer to that.

Let’s face it: as adults, our anxieties often have something to do with money. The next time you feel anxiety over an obstacle about which there seems to be no solution in sight, I hope you do your best to think of it as a second grade math problem. Events like this are only insurmountably small blips on a continuum of our lives, and they’re easier to get through then we sometimes think.

Dow Crosses 26,000 for the First Time in its 121 Year History

I’d like to share my thoughts on why the Dow crossing 26,000 is a critical milestone.

Are you ready for it? Okay, here goes.

It’s not. At all.

Milestones like this are a part of what Nobel Prize-winning Economist Robert Shiller refers to as the beginning of a “feedback loop,” in which growth is artificially stimulated by nothing more than an echo chamber of noise.

To break it down, feedback loops generally go like this:
1) A benchmark (the Dow – which consists of 30 stocks, mind you) closes at a record (but arbitrary) high.
2) News of this spreads like a contagion in the news media.
3) Financial experts are interviewed and offer watered-down, over-simplified, reactive explanations that sometimes have no basis at all.
4) The public’s confidence in investing is amplified based on the aforementioned analyses.
5) Demand for stocks is increased.
6) Share prices increase until another milestone is hit.
7) See step 1.

It may be a headline, but it isn’t news. Don’t let records, whether high or low, influence your investment decisions.