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disability mythSocial Security could run out of money, and the pandemic may have made the situation worse.

According to a report released in April 2020, the Social Security’s Old-Age, Survivors and Disability Insurance (OASDI) trust fund is expected to run out by 2035.

These estimates do not take the pandemic into account. Social Security is funded through payroll taxes. With fewer people working, less money is being put into the fund.  According to the Bipartisan Policy Center, this is expected to cause the funds to be depleted sooner, although the exact dates will depend on the severity of the recession. The retirement fund could run out as early as 2029 and the disability fund could run out as early as 2023 in worst-case scenarios.

What Happens When the Funds Run Out?

If the Social Security program runs out of money, people will still be paying taxes into the program. This means that Social Security benefits probably won’t disappear completely – but the benefits may be reduced.

This would be bad news for anyone depending on Social Security checks. After the cost-of-living adjustment for 2021, the average estimated monthly payment for January 2021 was $1,543 for all retired workers and $1,277 for all disabled workers.

This disability benefit is barely enough to keep an individual above the 2021 poverty line of $12,880 a year. If the benefit is reduced in the future, beneficiaries will have an even harder time staying afloat.

Don’t Leave Your Clients with Crumbs

The SSA states that one out of every four 20-year-olds will be disabled at some point in their lives before reaching retirement.

Those are sobering statistics, and your clients’ chances of becoming disabled are the same regardless of what’s going on in the economy. Add to that the uncertain economic landscape and it’s even more likely they could find themselves without an income for a significant amount of time if they become disabled.

Social Security disability benefits are already slim, and reductions could mean that future beneficiaries get even less.

Employer-provided benefits are skinny too.

Employer-provided income protection is insufficient for most working Americans. First of all, employer-paid DI benefits are taxable. Secondly, benefits are typically only based on an employee’s salary – excluding bonuses, commissions, and other considerations. Finally, many employer-provided plans are capped at a weekly maximum – i.e. $500, which is sadly insufficient for high wage-earners. So, a person who earns $75,000 annually or gross weekly pay of $1,442 may only receive 60 percent up to a weekly maximum of $500 under her employer-paid benefits. That $500 benefit is taxed. At a tax rate of 20%, the worker will receive a weekly benefit of $400 – significantly less than it takes to sustain her current lifestyle.

IDI: Like the Middle of an Ice Cream Sandwich

To ensure adequate income protection and enough food on the table, your clients should purchase a supplemental individual disability insurance (IDI) policy.  Like an ice cream sandwich, IDI protection is portable which means workers can carry it with them to any future employment. Because IDI premiums are paid by the employee, they are not taxed. If your client is unable to work due to illness or injury, she may be able to scrape up some SSDI crumbs and a thin layer of employer-paid income protection. But the supplemental IDI policy will be the rich centerpiece of income sustenance that ensures the family will not go hungry.

The need for income protection is greater today than ever before, and individual disability protection is a smart choice. If you’re not educating your clients about the benefits of this insurance protection to supplement SSDI and employer-provided benefits, you should be. You can do them a great service by giving them the hard facts and advising them of the best income-protection strategies.