401(k) Insurance

Many of us have some sort of disability plan, whether on our own or through our employers (although there are a lot of folks who don�t, but that�s another post). Such plans are valuable: during our working years, we�re more likely to become disabled for a while than to die.

Disability insurance can (help us to) pay our mortgage and utility bills, car payments and the kids� college tuition. There are even tax benefits, depending on how one structures the plan.

One thing this remarkable product can�t do, though, is help us save for retirement.

Hunh?

Well, let�s think about it, shall we? If I�m contributing to my 401(k) (or other qualified plan), I�m doing so with my earned income. But what if, because I�m disabled, I�m not earning any income? Even if I could afford to do so (and how many disabled folks are?), I�m not allowed to contribute to my plan until and unless I�m back to work.

But time marches on, and with it, the opportunity to sock away dollars for my retirement.

What to do?

Generally, we don�t endorse or promote specific companies or products here: we�re idea- and solution-oriented. But recently, I learned that one of my carriers has developed a remarkable, and unique, new product that goes a long way toward solving the problem of retirement vs disability.

Called RetireGuard, it�s offered by MassMutual (of course, if and/or when I learn of other, similar products, I�ll update this post). Briefly, it�s a disability plan that serves one purpose: to help fund retirement if one becomes disabled. For example, let�s take that ubiquitous 35 year old. Annie began contributing $400 from each (biweekly) paycheck. She did so in order to maximize her employer�s matching program, and because she feels it�s important. Currently, she�s earning 8 percent on her investment choices.

Should nothing untoward happen to Annie, she can expect to build up about $1.18 million when she hits that �magic 65.�

But what happens when she�s hit by a drunk driver, or has a stroke, or suffers a skiing accident?

If she�s like most of us, she has no way of continuing those contributions, so she ends up with a little over $400,000 on her 65th birthday. Not exactly a pauper, granted, but not �sitting pretty,� either.

With this new insurance plan, however, she�d have $1.15 million for her retirement (about 97% of what she�d anticipated). Good deal. (Caveat: we�re plugging in arbitrary returns here, YMMV).

Now, is this the perfect solution? Well, no, nothing is �perfect.� It may be that her anticipated premiums don�t fit her budget. Or, that she has other investments that would take up the slack. But for a lot of folks, this might be a great way to ensure that our retirement plans aren't totally derailed.