Wealth Services

Journey to Retirement: The Role of Long-Term Disability Insurance

May 22, 2024

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As individuals navigate towards retirement, creating and following a plan is crucial. However, one often overlooked component when planning for retirement is long-term disability (LTD) insurance. Ensuring that you have the proper policy in place if a disability occurs is essential to protect your post-working dreams.

Understanding the Importance of Long-Term Disability Insurance

Disability insurance is designed to replace a portion of your income if you become unable to work due to an injury or illness. While many people associate disability insurance with short-term needs, it is also a crucial element of a long-term financial plan. Disabilities can happen at any age, and the financial impact can be devastating if you are not adequately insured.

Here are a couple reasons why disability insurance is vital:

  • Income Protection: During your working years, your income is your most valuable asset. Disability insurance allows you to continue meeting your financial obligations and saving for retirement, even if you are unable to work.
  • Retirement Savings Preservation: Without disability insurance, you may be forced to dip into your retirement savings to cover living expenses, jeopardizing your future plans.

Incorporating Long-Term Disability Insurance

To safeguard against your retirement being derailed by a potential disability, follow these steps:

  • Assess Your Current Coverage: Start by evaluating any existing disability insurance policies you have, whether through your employer or purchased individually. Understand the terms, coverage limits, and waiting periods.
  • Determine Your Needs: Calculate how much income you would need to maintain your lifestyle if you were to become disabled. Consider your monthly expenses, existing savings, and any other sources of income.
  • Choose the Right Policy: If your current coverage is insufficient, look into purchasing additional long-term disability insurance. These policies offer benefits for extended periods, often until retirement age.
  • Consider Policy Riders: Riders can enhance your disability insurance policy by adding specific benefits. For example, a cost-of-living adjustment (COLA) rider increases your benefits to keep pace with inflation, keeping your purchasing power intact over time.

Planning for the Long Term

While obtaining an LTD policy is a crucial step, a truly resilient plan when saving for retirement demands a multi-layered approach. By implementing proactive strategies, you can ensure your financial journey remains on course even if a disability disrupts your career.

  • Regular Reviews: Periodically review your long-term disability insurance coverage to confirm it continues to meet your needs. Life changes, such as marriage, the birth of a child or career advancements may impact your coverage requirements.
  • Emergency Fund: Maintain an emergency fund to cover immediate expenses during the waiting period before disability benefits kick in. 
  • Financial Advisor Consultation: Work with a financial advisor to create a comprehensive plan that integrates LTD with your overall retirement strategy. An advisor can help you navigate complex insurance options and ensure you are adequately protected.

By understanding the importance of disability insurance and how it integrates with your overall financial strategy, you can protect yourself and your family from the financial impact of a disability. Regular reviews and consultations with a financial advisor can help keep you on track, allowing you to pursue your retirement dreams with confidence.