An extended period of disability can turn a breadwinner into a dependent, reducing, or even eliminating, income while increasing expenses. There are many “costs” associated with becoming disabled. You lose your current income. You lose your employee benefits, health insurance being the big one. Being disabled can lead to higher living expenses. While leaving the workforce can reduce some expenses, such as commuting and clothing costs, these are likely to be small compared to the additional expenses incurred because of greater health care associated costs, including, perhaps, the need for assistance in performing routine daily functions.

One area that is often overlooked when counting the costs of being disabled is the fact that you lose the ability to save for retirement. Not only is your current financial security threatened, so is your future financial security. The following chart from the U.S. Census Bureau (2003) shows the potential impact of a long term disability on retirement savings. It assumes disability beginning at age 35 and continuing uninterrupted to age 65, typical retirement age. It is based on the average amount of retirement savings typically put aside by an employee and his employer for that employee, assuming three different income levels at the time disability begins.

Potential Loss of Retirement Savings Resulting from a Long Term Disability

In each of these scenarios, about one-third of the funding for the lost retirement benefit would have come from the employer and the remaining two-thirds from the employee. That means, in addition to lost income, you also lose the opportunity to build a retirement benefit if you become disabled, which is one more reason to protect against the financial problems disability and the inability to work can create.

Few workers have sufficient savings to support themselves through an extended period of disability. Most workers have been able to save only a few months worth of their pre-disability income. According to a U.S. Census Bureau Survey of Income, the amount the average person has in savings increases with age and income level, with a range somewhere between one month’s income at age 35, earning $25,000 per year, to seven month’s income at age 55, earning $100,000 per year. In any case, those savings won’t help for long, and, once gone, you have nothing left for other unexpected expenses. These are among the many reasons to protect yourself, and your family, by insuring against the possible loss of income because of disability.

More reasons to plan ahead by insuring against the loss of income resulting from being disabled and unable to do your work.