Today's retirement planning crisis is over Social Security Disability Insurance, or SSDI, which the Congressional Budget Office announced is about to go belly up because so many people have turned to it in these economic hard times.
The report says the average monthly payment for SSDI is $927. It's paid for out of Social Security payroll taxes. In 2010, $93 billion was earmarked for disability payments, but $124 billion was paid out. More than $180 billion has been collected in previous years for disability payments, but at this rate, we'll burn through that in 2017.
The likelihood of being disabled doubles from ages 55 to 64, according to a recent report from the Urban Institute. It's a problem that particularly afflicts people with little income and limited education. Adults who didn't complete high school are three times as likely to be disabled by age 64 as college graduates, and high school graduates who never attended college are twice as likely, the Urban Institute says.
Why isn't entirely clear, but you don't have to be a rocket scientist to figure out that people with limited access to health care and strenuous jobs are more likely to be sick or injured.
After the onset of disability, 21 percent of adults between ages 51 and 64 live on income that's below the poverty level. Among single adults, the rate rises to nearly 35 percent because they don't have a spouse who can work. Most people you might think of as disabled never get SSDI because only about 30 percent of those who apply are able to qualify. And even if they do qualify, 15.5 percent of people receiving the disability insurance are living on income below the poverty level.
If you're a few years away from retirement, buying disability insurance -- either through your employer or through a private carrier -- is very smart. It's not cheap, but if you can afford it, spend the money. About one-third of people sometime in their lives will suffer an ailment or an accident that will keep them out of work for more than 90 days, according to the Social Security Administration. It doesn't take very long to go through all your resources -- including your retirement savings -- if you can't work for a long time.