For Disabled, Getting a Handle on Expenses and Identifying Income Sources isn’t Easy, but is Essential, Says Allsup

Whether it’s a credit counselor to help you reduce debt, a financial advisor to help find the best sources of income or a claims representative to help streamline the SSDI application process, individuals with disability shouldn’t be ashamed to ask for help.

Belleville, Ill. (PRWEB) November 27, 2007-- If you suffer an illness or accident that leaves you unable to work, there’s a good chance you won’t have the resources to keep you financially afloat until you begin drawing Social Security disability benefits. Be prepared for an average two-year wait, warns Allsup Inc. (http://www.allsup.com/), the nation’s leading Social Security Disability Insurance (SSDI) representation company.

“Having a significant disability in itself is a life-altering matter, but combined with no longer having the ability to earn a paycheck, the financial impact can be devastating,” said Paul Gada, product manager for Allsup.

According to Gada, the first steps in trying to minimize financial problems are understanding expenses and sources of available income. With about one-half of all bankruptcies attributed to injury, illness and medical bills, many people with disabilities don’t have enough income to offset their expenses.

“Ideally, individuals should be planning for a potential disability before it occurs by taking advantage of their employer’s long-term disability and workers’ compensation insurance,” said Gada. “If they don’t have this protection, they need to act quickly in determining how they will generate needed income and how they can reduce expenses. What’s challenging to so many is that one of the most widely available sources of income – Social Security Disability Insurance – often takes a long time to get.”

Examining Expenses

When people lose their job, an immediate reaction is to look at how to reduce expenses. But when someone becomes disabled they are not only out of a job, they usually have to face higher expenses for medical costs, alterations to their home to make it accessible or hiring people to perform tasks they used to do themselves. As a result, it’s extremely important to determine where expenses can be eliminated or scaled back. It’s also important to avoid using credit cards as a line of credit because high interest rates will simply add to long-term debt.

Gada advises individuals not to eliminate health insurance. Even after you begin receiving SSDI benefits, there is still a two-year waiting period before you are eligible for Medicare. Keeping insurance while waiting for Social Security disability benefits, and then during the gap until Medicare is available, can be essential to protecting your financial security. If COBRA is available through your former employer, it may be a good starting point because you may qualify for an 11-month extension beyond the typical 18 months allowed under COBRA.

Gada notes that individuals that find they are falling behind in paying bills should meet with a credit counselor to help organize their debts and establish a payment plan. The National Foundation for Credit Counseling (www.debtadvice.org) is a non-profit organization that offers free and low-cost help to individuals needing advice on getting out of debt.

Identifying External Sources of Income

Once there is a general understanding of expenses, it’s important to look at all potential sources of income. Beyond accumulated wealth or income of a spouse, people who can’t work because of a disability have three externally generated options for realizing income: income from a private or employer-paid disability policy, workers’ compensation or income from Social Security Disability Insurance.

Only about one-third of employees have private disability insurance, according to the Social Security Administration, and workers’ compensation is only a source of income for those injured at work or suffering from a work-related disability. SSDI, on the other hand, is the largest benefit program for individuals with disabilities, paying out more than $75 billion in benefits to 6.8 million workers with disabilities in 2006.

Gada notes, however, that not all individuals are eligible for Social Security benefits. Among the requirements (http://www.allsup.com/disabilityGuidelines/disabilityGuidelines.aspx):

•    You must have worked and paid into Social Security through mandatory payroll taxes (FICA) for five of the last 10 years;

•    You must have been disabled before reaching full-retirement (65-67 years old, depending on your current age); and,

•    You must meet Social Security’s definition of disability, which generally means being unable to work due to a medically determinable mental or physical impairment expected to result in death or last for at least 12 months.

People who do qualify for Social Security disability should file as soon as possible. The wait for a final decision in 2007 is now 524 days (about 17.5 months) and the average monthly benefit is $996. Individuals that have long-term disability insurance may get added help from their provider in securing Social Security disability benefits as some insurers have agreements with SSDI representation organizations like Allsup. Individuals without long-term disability also can seek the help of representation organizations.

Tapping Your Retirement or Home Equity for Income

Additional income options may be available to some individuals, including tapping retirement or home equity, but both have significant downsides, according to Gada.

For example, you are generally subject to a 10-percent tax penalty for taking distributions from your IRA before age 59 1/2. However if you have a qualifying disability, you can take early distributions without penalty. To be considered disabled by the Internal Revenue Service, which oversees the rules for retirement distributions, you need to provide proof that you are unable to do any ‘substantial gainful activity’ because of your physical or mental condition. You also need to have a doctor show that your condition is expected to result in either death, or to ‘be of long, continued, and indefinite duration.’ Similar rules apply for early distributions from 401(k) accounts for financial hardship.

“The downside is you are borrowing against income you need for retirement, so you may simply be delaying financial problems. But for people facing immediate living expenses or high credit card debt, this may be their only option,” said Gada. He emphasized that reviewing such a major decision with a retirement or financial planning advisor is a good first step.

Tapping equity in their home is another option used by those trying to make ends meet after suffering a disability. This can include taking out a home equity loan, home equity line of credit, second mortgage or reverse mortgage. This can be risky, however, because half of all mortgage foreclosures are the result of a disabling injury or illness. For example, in most states, an individual’s home is protected if he or she is forced into bankruptcy. But if you take out a mortgage, the mortgage amount can be lost in the bankruptcy proceedings.

“Your home can be a source of income, but more importantly it’s a place to live,” said Gada. “As a result, any equity-seeking options should be evaluated carefully and only taken after consulting with a trusted financial advisor.”

Asking for Help

While family and friends can be an incredible source of emotional and financial support, individuals facing disabilities – and their families – also should seek out professionals to help them.

“Whether it’s a credit counselor to help you reduce debt, a financial advisor to help you find the best sources of income or a claims representative to help you streamline the SSDI application process, you shouldn’t be ashamed to ask for help,” said Gada. “The earlier and more proactively you seek help, the more support you can get to help put you back on the right track.”

About Allsup

Allsup Inc. is the nation’s premier Social Security Disability Insurance representation company. Since 1984, Allsup Inc. has helped nearly 100,000 Americans with disabilities receive their entitled disability benefits. Today, the company has about 460 professionals focused on helping individuals and their families gain the financial and health benefits they deserve. For more information, visit Allsup’s Web site at www.allsup.com.

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