Shortfall against your goal
No gap: your cash and investments cover the 3-month waiting period (leaving $45,750), and disability benefits cover your goal after that.
By age 65 you'd be $244,125 short of your goal. Your $60,000 of cash and investments would cover part of that, leaving a gap of $184,125 (in today's dollars).
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 — $11,000 a month.
If Joe could not work: $6,250 a month of income keeps coming in, plus $4,750 a month of disability benefits after tax once they begin.
| $11,000 a month goal − $6,250 a month income that keeps coming in − $4,750 a month disability benefits after tax | no monthly gap |
| The goal: $10,000 a month of essential spending + $1,000 a month of Joe's retirement saving | $11,000 a month |
| Joe's disability benefit (coverage through work), after a 3-month wait | Taxed at your 25% rate: $5,000 a month before tax, $3,750 a month after |
| Joe's disability benefit (a policy you own), after a 3-month wait | $1,000 a month (not taxed) |
| How Joe's benefit through work is worked out | 60% of about $10,000 a month of pay would be $6,000, capped at the $5,000 maximum — so $5,000 a month before tax, $3,750 after. |
| Joe's pay | We estimated Joe's pay before tax at about $10,000 a month, from $7,500 a month of take-home pay and your 25% tax rate. |
| Before the benefit starts: $4,750 a month short for the first 3 months ($4,750 a month × 3) | $14,250 |
| Covered by your $60,000 of cash and investments | $45,750 left |
All figures in today's dollars.
No gap: your cash and investments cover the 3-month waiting period (leaving $45,750), and disability benefits cover your goal after that.
Waiting period: $14,250 short over the first 3 months before benefits begin. Your $60,000 of cash and investments covers it, leaving $45,750.
After benefits begin: no monthly gap to your goal.
Joe's take-home of $7,500 a month would drop to $4,750 a month of benefits — $2,750 a month less.
The household could still pay for essential spending once benefits begin.
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 | $0 — no gap |
| In 25 years (when Joe would be 60) | $11,910 |
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 Joe could not work: the shortfall so far vs savings
Your goal: keep essential spending and retirement saving going — $10,800 a month.
If Jill could not work: $7,500 a month of income keeps coming in, plus $4,375 a month of disability benefits (not taxed) once they begin.
| $10,800 a month goal + $3,000 a month household help − $7,500 a month income that keeps coming in − $4,375 a month disability benefits (not taxed) | $1,925 a month short |
| The goal: $10,000 a month of essential spending + $800 a month of Jill's retirement saving | $10,800 a month |
| Jill's disability benefit (a policy you own), after a 3-month wait | $4,375 a month (not taxed) |
| Before the benefit starts: $6,300 a month short for the first 3 months ($6,300 a month × 3) | $18,900 |
| Covered by your $60,000 of cash and investments | $41,100 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 | $36,225 | $23,775 |
| 3 years | $82,425 | $0 |
| 5 years | $128,625 | $0 |
| 10 years | $244,125 | $0 |
| to age 65 | $244,125 | $0 |
By age 65 you'd be $244,125 short of your goal. Your $60,000 of cash and investments would cover part of that, leaving a gap of $184,125 (in today's dollars).
Waiting period: $18,900 short over the first 3 months before benefits begin. Your $60,000 of cash and investments covers it, leaving $41,100.
After benefits begin: $1,925 a month short of your goal.
That is while the household help is needed (about 10 years). After that: no monthly gap.
Your cash and investments would run out in month 25.
Jill's take-home of $6,250 a month would drop to $4,375 a month of benefits — $1,875 a month less.
The household would be $1,125 a month short of even essential spending.
Figures in today's dollars.
| If it happened… | The gap then |
|---|---|
| Today | $184,125 |
| In 5 years | $14,939 |
| In 10 years | $0 — no gap |
| In 25 years (when Joe and Jill would be 60) | $0 — no gap |
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 Jill could not work: the shortfall so far vs savings
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 Joe couldn't work for 2 years
Your savings and the income that keeps coming in would cover it — no gap.
If Jill could go back to work after 1 year
There would be no gap instead of $184,125. See it on its own
If Jill could go back to work after 5 years
The gap would be $68,625 instead of $184,125. See it on its own
If Joe worked half time to help care for Jill
The gap would be $1,276,125 instead of $184,125. See it on its own
If Joe stopped working to care for Jill
The gap would be $2,626,125 instead of $184,125. See it on its own
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