How Does Social Security Affect Long-Term Disability Insurance?


How Does Social Security Affect Long-Term Disability Insurance?

When I became disabled I had to use the six months disability policy through my company. It paid 60 percent of my baseline salary. This went smoothly, and I had no problems. When my long-term disability insurance took over this is where all the problems started. I had not been smart enough to get a disability insurance policy through a qualified independent agent in the years prior, because a disability would never touch my life.

When my company’s long term disability started to pay me, I had to apply for Social Security Disability as I was under 66 years of age. What does a person do if Social Security denies their claim? Make sure that friends, family and charity do not have to be relied on for extra income. Protect yourself with disability insurance.

When a company’s long-term disability has to make disability payments, they require a lot of paperwork. I think they make this process so hard one just wants to throw their h ands in the air and quit. The doctor and I had to do a mound of paperwork he, nor I wanted to do. These types of questions are not easy to answer.

An unfortunate disability could cause financial ruin for anyone. How do bills get paid? How does food stay on the table? How are children supported? How does the mortgage get paid and much more? Make wise decisions about your financial future in the event that a disability situation enters your life. Contact your independent insurance agent and ask for a quote for a disability insurance policy and find out how your Social Security affects your long-term disability insurance.

How Much Can You Earn and Still Receive Social Security?

Retirees are often ready, willing, and able to start new careers or businesses late in life that may earn them valuable incomes. However, some may feel that it is not worthwhile to work for wages, only to have to “give up” some of those earnings in the form of higher income taxes. Frustrating as that may sound, it is important to underst and the fundamentals of Social Security income and taxation so you can make your retirement years more “golden” and less “taxing.”

Income Limits—Paying to Work?

The first factor you must consider is your age and the so-called Social Security “giveback.” If you are age 62 or older, under the full retirement age (65–67 depending on your birth year), and receiving reduced Social Security benefits, you must “give back” $1 for every $2 earned above $14,160 in 2010. If you attain full retirement age in 2010, your benefits will be reduced by $1 for each $3 earned over $37,680. Upon attainment of full retirement age, you may earn as much as you like and Social Security benefits are not reduced.

How Much Is Taxable?

A second factor affecting your Social Security benefits is the potential income taxation of those benefits. Let’s assume you are working and you also receive a check from the Social Security Administration (SSA) each month. You must first determine how much, if any, of your benefit is included in your gross taxable income. The first step in estimating this is to add up the following items: your wages, taxable pensions, interest, dividends, and other taxable income; all tax-exempt interest; any exclusions from income; your net earnings (net income less net losses) from self-employment; and half of your Social Security benefits.

This total is then compared to a first-tier threshold of $25,000 for a single taxpayer or a married taxpayer who is filing separately and lived apart from his or her spouse for the entire year, or $32,000 for a married taxpayer filing jointly. For a married taxpayer filing separately, who lived with his or her spouse for any period during the year, the first-tier threshold is $0.

For the sake of illustration, suppose your total applicable earnings are $27,000, and you are married and filing jointly. Since the total does not exceed the applicable threshold amount of $32,000, then no portion of your Social Security benefit is taxable. However, if the total exceeds the applicable threshold amount, a further, more complicated, calculation must be performed to determine the amount of your benefits that are taxable. You can refer to IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for more information, or consult your financial or tax professional.

As you can see, performing these calculations is no simple task. Thus, it is important for anyone who is thinking about taking Social Security benefits while still working to underst and the potential tax consequences and to plan accordingly. As with all tax planning matters, it is wise to consult a tax professional to help ensure your planning decisions are consistent with your overall goals.

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to ( and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor.

MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

Copyright ã 2010 Liberty Publishing, Inc. All rights reserved.

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This article appears courtesy of Karl Susman. Karl Susman is a representative of the New Engl and Life Insurance Company. He focuses on meeting the individual insurance and financial services needs of people on the West Coast. You can reach Karl at the office at (424) 785-4337. New Engl and Life Insurance Company, 501 Boylston Street, Boston, MA 02116