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Lengthy Disability Leave Can Impact Your Retirement

Andrew Martins
Andrew Martins

A new study says medical issues and disabilities can hamstring your plans for the future.

  • According to The Standard's Total Wellness Ecosystem study, 70% of 1,000 employees aged 21 to 69 said they worry about having enough money saved away for retirement.
  • More than a fifth of 20-year-olds can expect to miss work for at least a year because of a disabling condition.
  • Regarding the top concerns of those polled, 71% said they were most worried about lost wages. Another concern was that their financial problems were actively causing them health problems.

Workers often dream about the golden years of retirement. They save their money and plan ahead for a leisurely future spent on cruise ships and golf courses – until life throws a curveball and lands them on disability. While disability can also be planned for, a new study from The Standard found that being forced to take time off to recover can make retirement goals even harder to achieve.

Earlier this year, The Standard surveyed 1,000 U.S. full-time employees aged 21 to 69 whose employers offered a 401(k) or 403(b) retirement plan for its Total Wellness Ecosystem Study. Researchers said they wanted to hear only from employees who were "both aware of at least one nonmedical employee benefit and whose employer offered at least one nonmedical benefit."

According to researchers, approximately 70% of respondents said they were worried that they wouldn't be able to save enough money for retirement. Part of the reason for this fear is the very real possibility that a medical condition or accident could sideline them for extended periods of time, resulting in lower earnings and compounding medical bills. [Read related article: How to Save for Retirement if You Have Your Own Business]

According to the Council for Disability Awareness, more than 1 in 4 of today's 20-year-olds should anticipate missing at least a year of work because of a condition before they hit retirement. Data suggests that the average length of disability could be up to 31.2 months.

"Fifty-one million working adults are without disability insurance beyond basic Social Security," said Tom Foran, vice president of underwriting and product development at The Standard. "Without a bigger safety net, an employee's financial stability could quickly collapse due to an unexpected illness."

With so many considerations going into retirement planning, the fact that one bad accident could either greatly diminish or erase any hope of saving money for retirement is disheartening – and that alone could have adverse health effects.

Money problems linked to poor health

Worrying about your financial situation can pervade your everyday thoughts, leaving you with a negative cloud hanging over your head. That constant strain on their mental well-being can cause people to experience health problems and miss work.

According to the survey, 71% of respondents marked a fear of lost wages as their top unexpected cost concern, followed by high deductibles (65%) and emergency room visits (56%). Their top financial concerns overall included monthly expenses (57%), medical expenses (52%) and support if disabled (52%).

Researchers also found that 25% of respondents' financial worries were directly linked to health problems they'd experienced. Additionally, 15% said having their minds on money problems resulted in people missing work.

"Money concerns affect health and health issues impact finances," said Rob Baumgarten, vice president of retirement plan sales at The Standard. "These strong connections make clear the need for a total wellness ecosystem that keeps employees healthy, productive and saving for retirement."

To protect themselves from unexpected health costs, most employees rely on their health insurance and a regimen of preventative care to help stave off sudden costs. Yet, when it comes to knowing what their insurance covers and what it doesn't, most respondents were unaware of their health insurance provider's limitations as they pertain to nonmedical costs.

"Everybody talks about credit card and student loan debts, but no one – especially younger workers – expects to be diagnosed with an injury or illness that forces them to miss work for a significant amount of time," Foran said.

What you can do to prepare for the worst

While researchers found that employees haven't been properly educated on what they can do to financially prepare for the unexpected, they learned that 89% of respondents were actively participating in their employer's retirement savings program. That high percentage is bolstered by the fact that 62% said they considered retirement planning a "high priority." [Read related article: 5 Ways Small Business Owners Can Start Preparing for Retirement]

Still, some employees who were unsure about other ways they could prepare for an unexpected illness or injury often decided to do nothing. To combat that, The Standard offered the following suggestions for workers:

  • Ask your employer about disability coverage. Sign up and make sure you have adequate disability insurance during your employer's annual open enrollment season or through a private insurer.

  • Ask about disability coverage when job hunting, or ask your current employer to provide it. Consider signing up for supplemental insurance products such as accident or critical illness insurance, which provide a lump sum of money to offset expenses that medical plans don't cover, like copays and child care, in the event of a disabling medical condition.

  • Start saving for retirement as soon as possible. This will reduce the impact of disability on your retirement. Signing up is a great start. There are online tools and calculators that can help you set a personal savings target. Consider a double-digit contribution. The more you save now, the better your chances of reaching your goals. The earlier you start saving, the longer your money has to earn and compound interest.

  • Accelerate your savings. Build an emergency fund with a goal of saving three to six months of income to cover unexpected expenses. Increase your retirement plan contributions as much as you can – even if it's just in incremental amounts every six months or annually. If you're over age 50, you can take the opportunity to save even more with catchup contributions. Limits for these contributions are in addition to the regular annual contribution limits and vary each year.
  • Build your retirement in different ways. You can add bonuses, tax refunds or other single payments to your retirement account. If your employer's plan offers a Roth feature, and it fits your situation, think about signing up. A Roth feature offers tax-free growth and withdrawal flexibility in retirement.
Andrew Martins
Andrew Martins,
Business News Daily Writer
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I am a former newspaper editor who has transitioned to strictly cover the business world for business.com and Business News Daily. I am a four-time New Jersey Press Award winner and prior to joining my current team, I was the editor of six weekly newspapers that covered multiple counties in the state.