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Neeraj Chauhan is a Certified Financial Planner and CEO of The Financial Mall. The Financial Mall is a financial supermarket & in operation for over 20 years. It manages total financial affairs of clients through wealth management and financial planning Process.

Sunday, January 22, 2012

What Are Your Income Sources If Disability Strikes?

How much money do you spend to protect your assets? Most individuals have automobile insurance, homeowners insurance to protect a home and its contents and, possibly, additional coverage for items or collections of particular value. These assets are, without doubt, valued at a sizable amount. However, their income-producing value is negligible.

Your true wealth comes from your ability to earn money. The money you earn most probably pays for everything from the rent or mortgage and property taxes to the costs of maintaining your home. You have food and clothing to buy, as well as loan and credit card payments to make. You must pay for the property insurance noted previously, as well as for premiums on casualty and life insurance policies. What other miscellaneous expenses do you have? If your income from employment or your business were to cease suddenly, what financial resources would be available to you to help pay your ongoing expenses?

Typical candidates for disability protection

Typically, permanent disability involves a series of hardships that results in an inability to perform certain work and daily activities for the foreseeable future. Some professions and occupations are at greater risk, and, therefore, consideration should be given to purchasing protection that has long-term income stream potential.

·     Jobs requiring specialized abilities. Replacing income without disability income insurance is usually challenging; comparable pay and work conditions may be difficult to restore. Years of specialization, vocational training, experience and education are invaluable, but may become unusable resources if a disability occurs. Occupations that require physical labor are particularly vulnerable to physical disabilities. However, physical impairments are just one type of disability. Workers from all professions are likely to face extreme challenges if an emotional or mental disability affects their usual functioning.

·     One- and two-income families. Not everyone has parents, in-laws, siblings or friends who might offer immediate emergency financial help or ongoing support. A one-income household is particularly vulnerable to permanent loss of income. Family situations in which each spouse covers between 30 percent and 70 percent of total financial needs may be especially impacted by the loss of one income.

·     Small businesses. Particularly vulnerable are partnerships and corporations (i.e., business enterprises run by two or more owners). If disability curtails the involvement of one owner, the remaining owner either “carries” the co-owner, or the business may close. In addition to earnings lost, the disabled business owner may miss certain planning opportunities, such as preparing for retirement.

·     High stress, service and production-oriented occupations. Long hours, deadlines, quotas and a fast-paced society place a tremendous burden on both mind and body. Our current emphasis on calorie control, physical exercise, meditation, relaxation and conscientious dieting are popular stress inhibitors that may indeed extend our life expectancies. However, every successful, healthy worker faces the possibility of a disabling accident or illness.

Alternative sources of income

Should you suffer a disability, you need to know where your income will come from. Would you have enough in savings to support yourself and your loved ones during a six-month disability? Do you know someone who would freely lend money to you if you were to become disabled? Perhaps your spouse can provide the necessary income, but the burden of being a spouse, parent, private caregiver and employee can be overwhelming. How quickly could you liquidate the assets you have insured so carefully?

Group and individual disability income insurance policies are available to cover most individual concerns and family or business situations. Careful planning will help steer you toward the proper coverage that addresses the demands on your current income and the needs of your family.       

Retirement Savings Strategies for 50 +

Today, Many age 50 and older have not yet begun to save for retirement or have amassed insufficient funds.

If you are in this age group and find yourself facing an underfunded retirement, it is not too late to take charge. There are plenty of things you can do—right now—to get on the right track. Here are some ideas:

What’s it going to take? First, you need to estimate how much money you will need in retirement. Once you have an idea of the amount, you can work toward fulfilling that goal. You may need 60–80% of your current annual income in retirement. Your financial planner can help you assess the best figures for your situation.

Work it, Friend! If your employer offers a retirement plan, contribute as much as the law allows. Many employers also match contributions, sometimes, by as much as 50–100%. Make sure you contribute enough to claim all of this “free” money, which can add up significantly over time.

Create a spending plan. In other words, make a budget. Many people think a budget will be restrictive, but look at it this way: You can spend now, or you can have the money to afford your dream adventures. It is very important that you pay down debt now and, furthermore, do not accrue new debt. Examine your spending habits and replace some of your discretionary spending with saving. Even as little as Rs 500 extra per week is a step in the right direction.

Take some initiative. On top of contributing to your employer’s plan, you can save even more by opening your own PF or NPS account. Contributions are made after taxes, but earnings and distributions are tax-free. You can also take some aggressive investment options like SIP in diversified equity fund.

Hang your shingle. Many people hope to start their own businesses post retirement. But why wait? If you begin your entrepreneurial efforts now, your business has the potential to be in full swing by the time you do retire, and any profits between now and then can be added to your savings.

Move it or lose it. It’s very likely that your home may have significantly increased in value since you first bought it. You may have already paid off the Loan. With children at or near adulthood and living separately, do you really need that extra space? If not then Selling now and moving to a smaller, more affordable location will allow you to transfer the equity in your home into a savings vehicle.

Why quit? If you want to cushion your retirement savings, consider staying on the job longer. Many people actually leave retirement to reenter the workforce because they feel more fulfilled in a working lifestyle. Others seek part-time work, consulting, or entrepreneurial endeavors. If any of these scenarios resonate with you, you will earn more money each year to save, and you may be able to put off drawing down your savings.

Regardless of which options you choose, time and compounding will be to your benefit as you save. Each year that your savings remain untouched allows more time for growth potential. The new generation intends to redefine retirement as we know it. With a few steps in the right direction, you will have the resources to usher change into a whole new era.