May 14, 2008 1:30 pm US/Eastern
New Insurance Can Help Keep 401K Growing
BOSTON (WBZ) ―
It's a worrisome statistic for any family: one out of three workers will, at some point, be out of work for three months, or longer, due to a disability. Many workers get disability insurance to cover their missed paychecks, but that won't do anything to cover missed contributions to a retirement plan. Now a new type of insurance is promising to help keep a nest egg growing.
Like a lot of Americans, Doctor Scot Glasberg puts money away in a 401K for his retirement. "What may seem like 30-40 years away comes up a lot quicker than people want to admit," he said. But his regular contributions to his retirement plan could get disrupted if he gets hurt.
Financial planner Lawrence Keller said that "can be extremely devastating from a financial planning perspective." That's why more workers are looking into something called "Retirement Insurance Contribution Protection."
Dale Evans, an insurance industry spokesman, explained "it allows someone that's saving towards retirement to protect against the possibility that if they get disabled in the future and are unable to work, that they would be able to have future money set aside."
Consider the case of a 45-year-old worker earning $100,000 who contributes 10% of her salary to her 401K, and gets an annual average return of 8%. If she's disabled and can't contribute for even two years, she would lose more the $60,000 in savings by age 65. Keller said "that's money that they would not have available to them in retirement."
Some employers are now offering these retirement insurance policies. In addition, some insurance companies are selling them independently. It may be a rider to disability insurance, or a separate policy. In most cases, a worker must already be contributing to a 401K or IRA. When that person becomes disabled, the money then goes into an account or trust.
Prices on policies can vary, depending on a worker's age and whether or not a job is considered dangerous. Experts suggest talking to a financial planner or retirement specialist before buying a policy. They can help decipher fine print, and make sure the policy makes sense for a specific person.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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