Shortfall against your goal
By age 65 you'd be $741,000 short of your goal. Your $135,000 of cash and investments would cover part of that, leaving a gap of $606,000 (in today's dollars).
No gap: the $90,000 needed to age 65 is covered by your $135,000 of cash and investments.
Your ability to earn is likely the largest financial resource your household has. An illness or injury can take it away for years, not months.
What would happen to the household's income if one of you could not work, from the first month to age 65.
How families protect against this. Disability insurance protects your paychecks over the rest of your working life. Few households could save enough to replace years of income. Disability insurance pays part of your income if illness or injury keeps you from working.
If one of you could not work for a long time, what should the household's income keep covering?
We count the lost income up to age 65.
We spread the saving to build a reserve over 24 months.
Your goal: keep essential spending and retirement saving going — $13,000 a month.
If Bill could not work: $0 a month of income keeps coming in, plus $7,000 a month of disability benefits after tax once they begin.
| $13,000 a month goal − $0 a month income that keeps coming in − $7,000 a month disability benefits after tax | $6,000 a month short |
| The goal: $9,000 a month of essential spending + $4,000 a month of Bill's retirement saving | $13,000 a month |
| Bill's disability benefit (coverage through work), after a 3-month wait | Taxed at your 40% rate: $5,000 a month before tax, $3,000 a month after |
| Bill's disability benefit (a policy you own), after a 3-month wait | $4,000 a month (not taxed) |
| How Bill's benefit through work is worked out | 60% of about $16,667 a month of pay would be $10,000, capped at the $5,000 maximum — so $5,000 a month before tax, $3,000 after. |
| Bill's pay | We estimated Bill's pay before tax at about $16,667 a month, from $10,000 a month of take-home pay and your 40% tax rate. |
| Before the benefit starts: $13,000 a month short for the first 3 months ($13,000 a month × 3) | $39,000 |
| Covered by your $135,000 of cash and investments | $96,000 left |
All figures in today's dollars.
How the gap adds up from the first month, and how much cash and investments would be left (in today's dollars).
| If it lasted | Gap so far | Savings left |
|---|---|---|
| 1 year | $93,000 | $42,000 |
| 3 years | $237,000 | $0 |
| 5 years | $381,000 | $0 |
| 10 years | $741,000 | $0 |
| to age 65 | $741,000 | $0 |
By age 65 you'd be $741,000 short of your goal. Your $135,000 of cash and investments would cover part of that, leaving a gap of $606,000 (in today's dollars).
Waiting period: $39,000 short over the first 3 months before benefits begin. Your $135,000 of cash and investments covers it, leaving $96,000.
After benefits begin: $6,000 a month short of your goal.
Your cash and investments would run out in month 20.
Bill's take-home of $10,000 a month would drop to $7,000 a month of benefits — $3,000 a month less.
The household would be $2,000 a month short of even essential spending.
Figures in today's dollars.
| If it happened… | The gap then |
|---|---|
| Today | $606,000 |
| In 5 years | $279,175 |
| In 10 years | age 65 or older — not counted |
| In 15 years (when Bill would be 70) | age 65 or older — not counted |
These figures include future price rises. We assume pay and spending go up 3% a year, but disability benefits stay the same — so a gap can open later. We assume your savings keep up with prices and you don't add to them. “No gap” means your savings would cover the whole shortfall.
If Bill could not work: the shortfall so far vs savings
Judy doesn't work for pay, so no paycheck would stop. If Judy could not work, the household would need to pay for the help Judy provides: $1,500 a month.
In place: no disability coverage — Judy doesn't work for pay.
| $1,500 a month household help | $1,500 a month short |
All figures in today's dollars.
How the gap adds up from the first month, and how much cash and investments would be left (in today's dollars).
| If it lasted | Gap so far | Savings left |
|---|---|---|
| 1 year | $18,000 | $117,000 |
| 3 years | $54,000 | $81,000 |
| 5 years | $90,000 | $45,000 |
| 10 years | $90,000 | $45,000 |
| to age 65 | $90,000 | $45,000 |
No gap: the $90,000 needed to age 65 is covered by your $135,000 of cash and investments.
Your savings would cover $1,500 a month.
That is while the household help is needed (about 5 years). After that: no monthly gap.
There is no gap to close.
| If it happened… | The gap then |
|---|---|
| Today | $0 — no gap |
| In 5 years | $0 — no gap |
| In 10 years | age 65 or older — not counted |
| In 15 years (when Bill and Judy would be 70) | age 65 or older — not counted |
These figures include future price rises. We assume pay and spending go up 3% a year, but disability benefits stay the same — so a gap can open later. We assume your savings keep up with prices and you don't add to them. “No gap” means your savings would cover the whole shortfall.
Each one shows how your result would change if something were different. They are not advice about what you should do.
Try your own what-if
If Bill couldn't work for 2 years
The household would be about $30,000 short over those 2 years, in today's dollars.
If Bill could go back to work after 1 year
There would be no gap instead of $606,000. See it on its own
If Bill could go back to work after 5 years
The gap would be $246,000 instead of $606,000. See it on its own
This would make your result more accurate.
Improve this result