Long term disability payoff

[August West]

Just because the S&P500 has gone up doesn't mean it will go up. It could go down. Hence, the benchmark has to be the risk-free return (savings or something like that). When you factor that level of return, you lose with the lump sum. Or at least that was my scenario.

[Oddity]

Huh. Well, "continuing monthly benefit payments until 65 years old" isn't risk free, either, nor is it consequence free (since the income doesn't keep up with inflation), so I don't think the alternatives needs to be, either.

(I.e. These plans have no survivorship, so if others also depend on that monthly income, early death is a risk. They can also be administratively, or medically, ended early, annually, if you're late on the paper work, or miss it, or have trouble with continued medical support, etc. They also inhibit any other sources of income, so there is also (depending on other earning potential) opportunity cost sunk into keeping a monthly benefit.)

[August West]

I'm not saying don't consider alternatives. Of course, you should consider alternatives including the S&P. I'm saying the S&P isn't a benchmark for this scenario. Because comparing a guaranteed return to one that has no guarantee is apples to oranges. I've considered it and the conclusion I came to is that the S&P is a fine alternative as long as you have other sources of income. If it's your only source of income it's too risky for this scenario IMO. It will "probably" go up (the key word is "probably"). Even if goes down, it will "probably" come back up. The catch is that if it goes down how much time will it take to go back up vs am I too old to see that recovery in my life?

[Oddity]

I understand. I'm not trying to convince anyone to make one decision or the other. Just adding more details to consider.

i.e. The issue with that whole notion, that savings accounts are "safe", is quite simply that they are not.

Average savings APR around here is .06%. That doesn't keep up with inflation.

At 2.5% target annual inflation (what The Fed wants), savings accounts lose half their value every 22-23 years instead of 20.

Savings accounts are not safe, they are guaranteed losses. The only way to store value is to invest. The only way to gain value is to invest.

Savings accounts simply can not function as "stores of value" unless we exist in a deep monetary recession, for decades.

I guess if a guaranteed ~50% loss over ~20 years seems more reasonable to someone than a potential >50% loss that comes along with a potential +800% gain (at ~10% annual reinvested returns) over the same period, then that's certainly a valid personal decision.

I'd just hope they were informed as to as many of the moving parts and potential decision points as possible prior to making it.

Which is what I hope the point of all this is.

[August West]

I remember someone (can't remember who) saying that the biggest risk of all is taking no risk. Your point is well taken. However, you've conveniently danced around this one point. You could have a catastrophic loss in the stock market. Then what? You're ruined. Bird in the hand...

[August West]

The catch about investing in the stock market is that you have to be a position to invest in the stock market. The saying that the biggest risk of all is taking no risk at all is applicable to the rich, the young, and the gainfully employed. But it's just sending the wrong message to someone in their sixties living off disability insurance. If the rich, the young, or gainfully employed invest and lose, they can wait it out. Better yet, they can add to that investment at a lower price and make even more money. But if someone in their sixties living off disability insurance invests everything they have in the S&P and loses, that could ruin them. Because they need the money now and have no time to wait for a recovery. Basically, it has to go up and it has to go up now. IMO it's irresponsible to put yourself in that position in your old age.

[vjls]

personally i would not get in at this point

[Oddity]

Yeah. The "bird in hand" is a sure thing, even if it isn't a great thing. I opted to decline my buyout when it came for exactly that reason, so I totally understand. But, if my (wife's) circumstances income-wise were then what they are today, I'd have jumped on it. The market has been good to me, these past 20-30 years, including one catastrophic ~50% loss in '08, so I'm probably a bit bullish. It's almost like free money. Until it isn't. If that loss had come when I was nearer to retirement age, and using that money to live, it would have really hurt. So, yeah. No real simple or risk free alternatives.

[August West]

Well, I'm glad we got that straight.

[crispy1981]

I'm hoping to retire soon but wonder if I should first apply for STD and LTD and then retire? I would really like to try the Kunming PT and if that works I might be able to continue to work longer if desired but I most likely would retire anyway (I'll b 60 end of next year).

Anyone try something like this before?

[August West]

Can you go on LTD and still be an employee?

[SCI-Nurse]

It depends on how disability is defined by your state (if it is state LTD) or employer benefits. Most require that you be unable to work. With SSDI you can work, but are very limited in the income you can make. (KLD)

[royb]

I thought I'd bring this back up to give some info on something that was said in this thread since I got some new info l. Yes, medicare does have a repayment clause if they've paid hospital bills and you get an insurance settlement related to it.

[funklab]

I thought I'd bring this back up to give some info on something that was said in this thread since I got some new info l. Yes, medicare does have a repayment clause if they've paid hospital bills and you get an insurance settlement related to it.

I’m not qualified to answer the question… but when has that ever stopped me.

I know Medicare goes after people who caused the injury. So say you incurred 1 million in medical bills from a drunk driver hitting you. They might go after that driver and his insurance company.

But that’s not what long term disability payments are. The disability insurer didn’t injure you or cause your disability. Medicare (presumably) isn’t garnishing your LTD payments for repayment of medical bills. I’d be shocked if they tried to get a cut of a lump sum payout, which is just your future LTD payments being made in a single lump sum.

[Oddity]

Medicare does not have Estate Recovery. That's only Medicaid that does that.

To clarify, since it’s come up again:

Estate Recovery is when a beneficiary dies, their estate is liable for paying back healthcare benefits, and/or clawing back payments from a living beneficiary who comes into their own means to pay. This is something only Medicaid does, not Medicare.

Medicare does do some benefits recovery, but only for what they define as “conditional benefits”. Those are benefit $$ they paid out, between a date of injury/incident and a date of a liability, no-fault, or workers comp settlement. Once you have a settlement, future Medicare benefits are not “conditional”. I.e. once you’ve squared with them for the conditional benefits, future benefits are not recovered.

This is all based on Medicare’s legal status as the “payer of last resort”. If any other entity can be found legally liable to cover the medical costs of an injury, and a settlement is awarded to the Medicare beneficiary, then any benefits Medicare paid between the date of injury and the date of settlement can be recovered from the settlement $, or from the 3rd party directly if it’s not a cash settlement to the beneficiary.

https://www.cms.gov/medicare/coordin...-plan-recovery

Some private insurers also have “conditional benefits”, for the same reason: they don’t want to be primary payer if someone else is legally $ liable for an injury.

[Joe-MN]

Since this thread is active again. (Note that I am not an accountant or lawyer and just a lay person with a little experience with an LTD policy).

Sounds like the OP was/is getting SSDI and LTD. In this case, you cannot work at all. Any $ earned will cause the LTD to be decreased by the same amount. So net effect zero.

If on SSDI and take a LTD payout, you would then be able to work up to the SSDI $ limit. Just a thought.

Another consideration is, how are LTD payments taxed? From my experience, if all, or part of a LTD policy was paid with after tax money, that portion/percent of the LTD payment is not taxed, though it is used to calculate total income for some purposes.