What to Know About Disability Insurance

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http://www.wsj.com/articles/what-to-know-about-disability-insurance-1457321025 (ขนาดไฟล์: 167)

And answers to other questions often asked about retirement finances

What to Know About Disability Insurance

By

GLENN RUFFENACH

March 6, 2016 10:23 p.m. ET

Planning for retirement can be a daunting process that raises a host of questions. So we have introduced Ask Encore as a regular feature in the Investing in Funds & ETFs and Wealth Management reports. Written by Glenn Ruffenach, a former reporter and editor for The Wall Street Journal, and co-author of “The Wall Street Journal Complete Retirement Guidebook,” the column examines financial issues for those thinking about, planning and living their retirement. We welcome your questions and comments at askencore@wsj.com.

I’m in my 50s and want to be sure my savings for retirement are protected up until retirement. People keep saying, “Get disability insurance.” But I can’t find any good, specific advice about the relative merits of different insurers’ plans. Do you know where I can find this data?

There is no single ranking of the “best” disability policies or insurance carriers. One reason: Different insurers tend to be a better fit for different occupations, says Mark Desiderio, a disability and life-insurance specialist with Ryan Insurance Strategy Consultants in Greenwood Village, Colo. One carrier, for instance, might have a history of working with dentists (who, as a group, tend to be big purchasers of disability policies), while a second carrier might focus on lawyers or small-business owners.

Also, the large number of options available with individual policies (when benefits kick in, how long they last, how terms like “sickness” and “disability” are defined, etc.) makes it difficult to compare coverage—and makes disability insurance an exceedingly complicated purchase.

So…start with some homework. Three online insurance brokers—PolicyGenius (policygenius.com), Disability Insurance Resource Center (di-resource-center.com) and Disability Insurance Quotes (disabilityquotes.com)—offer good information and articles about the basics: how coverage works, how much you might need, and what to look for in a policy. (Of course, each of the three is also more than happy to sell you a policy, if you wish to go the online route. But again, use these sites, first, as a guide.)

Second, find an insurance agent who specializes in disability insurance, one who will provide several quotes from different carriers. Ideally, your financial adviser should be able to point you to such individuals in your area. Or call an insurer directly and ask for a local broker. Or, in addition to the firms and services named above, try Disability Insurance Services (diservices.com) in San Diego, which can help steer you to a specialist.

Finally—and if you want to cover all the bases—take your policy of choice (before you sign on the dotted line) to a “disability claims consultant.” These individuals, as the title suggests, work with existing policyholders whose claims for benefits have been questioned or rejected by insurers. As such, they are intimately familiar with the fine print (read: traps) in coverage that might trip you up in the future. “Disability insurance is written in code,” says Vivian Gallo, founder and president of Health Resources Consultants Inc. in White Plains, N.Y. “It sounds like English, but you need to know: What does the language really mean?”

In a response to a question about Social Security, you pointed out that “delayed retirement credits” aren’t used when calculating a spousal benefit. But when a spouse dies while receiving delayed retirement credits, does the surviving spouse, when switching to the deceased’s benefits, receive the full amount, including the delayed retirement credits?

Yes, a widow or widower, in contrast to a spouse, is eligible to collect delayed credits. (A person earns such credits by waiting to file for Social Security beyond his or her “full retirement age.” That figure is climbing gradually to 67.) The size of the payout can vary, depending on when a person claims a survivor benefit.

Let’s say a husband, at full retirement age of 66, is eligible for a monthly benefit of $2,000. But he decides to delay claiming Social Security until 70, at which point his payout increases to $2,640, thanks to delayed retirement credits. If he dies first, his widow would be eligible to collect $2,640 a month, but only if she waits until her full retirement age to file for a survivor benefit. If she files early—between 60 and full retirement age—she would get 71.5% to 99% of her husband’s benefit.

There is one additional wrinkle, and it is helpful: A surviving spouse has the ability to switch benefits. A widow could begin collecting a reduced benefit based on her earnings record at 62 and switch to a full survivor’s benefit at full retirement age. (Or vice versa.) And those moves aren’t affected by new federal rules that are largely curtailing such claiming strategies.

I inherited a 401(k) from my father in 2014. Per the sponsor’s rules, I have five years from the year of death to completely withdraw the money. My father was over 70½ when he died so he had been taking annual required distributions. Here’s my situation: The balance remaining is all after-tax dollars. When I was executing his estate I was surprised to discover this. Unfortunately he hadn’t kept me informed about his investment details. If it was an inherited IRA, I believe I could convert it to a Roth IRA, but inherited 401(k)s have different tax rules. Do I have any distribution options that will minimize income-tax implications?

You will have to stick with the plan’s five year-rule. But the good news is that the tax bite should be minimal.

First, we assume you were named as the beneficiary on the 401(k) beneficiary form. If so, you could have rolled over the funds directly to an inherited IRA or even converted the 401(k) balance to an inherited Roth IRA, says Ed Slott, a certified public accountant and IRA specialist in Rockville Centre, N.Y. But…those steps had to be taken by the end of 2015—the year after death—and that date has passed. So, at this point, the entire inherited plan balance must be withdrawn by the end of 2019.

(If you weren’t the beneficiary, and if the 401(k) went to your father’s estate, the five-year rule would have kicked in automatically.)

The good news: Given that all the 401(k) funds are after-tax dollars, withdrawals—even under the five-year rule—will be tax-free, Mr. Slott notes. Of course, any earnings on those funds would be taxable. But from your description of the account, that seems unlikely.

Mr. Ruffenach is a retired Wall Street Journal reporter and editor living in Georgia. Email your questions and comments to askencore@wsj.com.

ที่มา: http://www.wsj.com/articles/what-to-know-about-disability-insurance-1457321025 (ขนาดไฟล์: 167)
วันที่โพสต์: 7/03/2559 เวลา 13:28:53 ดูภาพสไลด์โชว์ What to Know About Disability Insurance

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http://www.wsj.com/articles/what-to-know-about-disability-insurance-1457321025 And answers to other questions often asked about retirement finances What to Know About Disability Insurance By GLENN RUFFENACH March 6, 2016 10:23 p.m. ET Planning for retirement can be a daunting process that raises a host of questions. So we have introduced Ask Encore as a regular feature in the Investing in Funds & ETFs and Wealth Management reports. Written by Glenn Ruffenach, a former reporter and editor for The Wall Street Journal, and co-author of “The Wall Street Journal Complete Retirement Guidebook,” the column examines financial issues for those thinking about, planning and living their retirement. We welcome your questions and comments at askencore@wsj.com. I’m in my 50s and want to be sure my savings for retirement are protected up until retirement. People keep saying, “Get disability insurance.” But I can’t find any good, specific advice about the relative merits of different insurers’ plans. Do you know where I can find this data? There is no single ranking of the “best” disability policies or insurance carriers. One reason: Different insurers tend to be a better fit for different occupations, says Mark Desiderio, a disability and life-insurance specialist with Ryan Insurance Strategy Consultants in Greenwood Village, Colo. One carrier, for instance, might have a history of working with dentists (who, as a group, tend to be big purchasers of disability policies), while a second carrier might focus on lawyers or small-business owners. Also, the large number of options available with individual policies (when benefits kick in, how long they last, how terms like “sickness” and “disability” are defined, etc.) makes it difficult to compare coverage—and makes disability insurance an exceedingly complicated purchase. So…start with some homework. Three online insurance brokers—PolicyGenius (policygenius.com), Disability Insurance Resource Center (di-resource-center.com) and Disability Insurance Quotes (disabilityquotes.com)—offer good information and articles about the basics: how coverage works, how much you might need, and what to look for in a policy. (Of course, each of the three is also more than happy to sell you a policy, if you wish to go the online route. But again, use these sites, first, as a guide.) Second, find an insurance agent who specializes in disability insurance, one who will provide several quotes from different carriers. Ideally, your financial adviser should be able to point you to such individuals in your area. Or call an insurer directly and ask for a local broker. Or, in addition to the firms and services named above, try Disability Insurance Services (diservices.com) in San Diego, which can help steer you to a specialist. Finally—and if you want to cover all the bases—take your policy of choice (before you sign on the dotted line) to a “disability claims consultant.” These individuals, as the title suggests, work with existing policyholders whose claims for benefits have been questioned or rejected by insurers. As such, they are intimately familiar with the fine print (read: traps) in coverage that might trip you up in the future. “Disability insurance is written in code,” says Vivian Gallo, founder and president of Health Resources Consultants Inc. in White Plains, N.Y. “It sounds like English, but you need to know: What does the language really mean?” In a response to a question about Social Security, you pointed out that “delayed retirement credits” aren’t used when calculating a spousal benefit. But when a spouse dies while receiving delayed retirement credits, does the surviving spouse, when switching to the deceased’s benefits, receive the full amount, including the delayed retirement credits? Yes, a widow or widower, in contrast to a spouse, is eligible to collect delayed credits. (A person earns such credits by waiting to file for Social Security beyond his or her “full retirement age.” That figure is climbing gradually to 67.) The size of the payout can vary, depending on when a person claims a survivor benefit. Let’s say a husband, at full retirement age of 66, is eligible for a monthly benefit of $2,000. But he decides to delay claiming Social Security until 70, at which point his payout increases to $2,640, thanks to delayed retirement credits. If he dies first, his widow would be eligible to collect $2,640 a month, but only if she waits until her full retirement age to file for a survivor benefit. If she files early—between 60 and full retirement age—she would get 71.5% to 99% of her husband’s benefit. There is one additional wrinkle, and it is helpful: A surviving spouse has the ability to switch benefits. A widow could begin collecting a reduced benefit based on her earnings record at 62 and switch to a full survivor’s benefit at full retirement age. (Or vice versa.) And those moves aren’t affected by new federal rules that are largely curtailing such claiming strategies. I inherited a 401(k) from my father in 2014. Per the sponsor’s rules, I have five years from the year of death to completely withdraw the money. My father was over 70½ when he died so he had been taking annual required distributions. Here’s my situation: The balance remaining is all after-tax dollars. When I was executing his estate I was surprised to discover this. Unfortunately he hadn’t kept me informed about his investment details. If it was an inherited IRA, I believe I could convert it to a Roth IRA, but inherited 401(k)s have different tax rules. Do I have any distribution options that will minimize income-tax implications? You will have to stick with the plan’s five year-rule. But the good news is that the tax bite should be minimal. First, we assume you were named as the beneficiary on the 401(k) beneficiary form. If so, you could have rolled over the funds directly to an inherited IRA or even converted the 401(k) balance to an inherited Roth IRA, says Ed Slott, a certified public accountant and IRA specialist in Rockville Centre, N.Y. But…those steps had to be taken by the end of 2015—the year after death—and that date has passed. So, at this point, the entire inherited plan balance must be withdrawn by the end of 2019. (If you weren’t the beneficiary, and if the 401(k) went to your father’s estate, the five-year rule would have kicked in automatically.) The good news: Given that all the 401(k) funds are after-tax dollars, withdrawals—even under the five-year rule—will be tax-free, Mr. Slott notes. Of course, any earnings on those funds would be taxable. But from your description of the account, that seems unlikely. Mr. Ruffenach is a retired Wall Street Journal reporter and editor living in Georgia. Email your questions and comments to askencore@wsj.com.

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