Mets Day 271 - Plans for 2013

My plans for the new year are starting to come into focus.  The variables are falling into place.

One significant unknown was with regard to disability benefits.  It now appears that I will be able to receive the benefits of at least some of my private disability insurance policies.  Over the past 15 years or so, I had purchased and paid premiums with post-tax dollars on five different disability insurance policies:  Three with MassMutual, one with MetLife, and two with Unum.  I collected these policies over my career with two different law firms, and have added coverage from time to time.  The premium cost was not trivial, but I'm now glad that I purchased and maintained those policies.

The three MassMutual Policies, and one Unum policy, were income replacement policies that would pay varying amounts if my ability to maintain my income was compromised due to illness or accident.  The MetLife policy would make payments into a retirement account if my earning ability, and thus my ability to save for retirement, was compromised.  The other Unum policy was for long term home care as needed.  I have had those applications pending for months, some since August 2012, others since early October.  I ended up having to personally collect the medical records and send them to the insurance companies, because either the insurance companies or the docs were slow-walking the records requests.

Upon my return from my vacation with my family, I found that MassMutual had approved my disability applications on all policies I had with them.  They concluded that my 6 month elimination period had been met, and sent me a check to cover the first two months of benefits.  Future benefits will be direct deposited into my account. 

Likewise, MetLife has approved the payment of retirement benefits under their policy. Those benefits will be made into an irrevocable trust, and I will have the ability to direct the investment, sort of like an IRA. Those benefits will become available at age 65 or to my estate upon my death, whichever occurs first. 

I am still awaiting a decision by Unum on its two different policies.  If approved, one will add to my monthly income replacement benefit, and the other will reimburse me for any needed home health care.  Unum had told me right before I left on vacation that it was going to approve the home benefits claim, but upon my arrival home, I saw a letter from them saying that Unum needed more time to make a decision. 

The income replacement policies have an interesting aspect that directly affects my work plans.  Because they are income replacement policies, they are pro-rated based upon how much I work and am paid by my law firm.  If as a result of my disability my income from my legal practice falls 80% or more, then I am considered totally disabled and will receive 100% of the insurance benefit.  If my income from my law practice falls less than 20% due to my disability, then I am not considered disabled, and not eligible for benefits.  If my law firm income is between 20% and 80% of before, and the loss is due to my disability, then I am partially disabled, and my benefits are pro-rated.  For example, if my law firm income is 50% of pre-disability, then I would get 50% of my benefits.

The total amount of benefits does not equal the amount of earnings I had at the law firm, however. The maximum benefits equal only about 60% of my pre-disability income.  But because I paid for these policies with taxable dollars, all of the benefits are tax-free.  I don't know what my marginal tax rate will be in 2013, but it likely will be at least 25 or 30%, so a dollar in insurance benefits is worth at least $1.25, and probably more, than a dollar in taxable earned income.
 
The curious effect of the way these policies are structured, coupled with the tax consequences, is that I have no economic incentive to work and earn more than 20% of my prior income, unless I will be earning more than 65%.  For example (these are not real numbers, just a hypothetical), if my annual total pre-disability gross earnings was $150,000, and the maximum insurance benefits was $100,000, then if as a result of my disability my earnings were 50% of before (or $75,000 in taxable dollars), the insurance companies would pay 50% of the benefit, for $50,000 in non-taxable dollars.  My total income would be $125,000, of which $50,000 would be tax-free.  But if my post-disability earnings were only 20% (or $30,000 in taxable dollars), then I would receive 100% of disability benefits, or $100,000 in tax-free income.  In that instance, my total income would be $130,000, with $100,000 being tax free.  Thus, working and earning 50% of before provides me with less income than earning working and earning 20%.  I figure that the break-even point is about 65% of pre-disability income.

Of course, my preference is that I would be completely cured and able to work 100%, without any disability.  But as long as I have my continued issues with incontinence, sleep deprivation, the increasing likelihood that I might have another major surgery, coupled with the high statistical likelihood that the cancer will metastasize into untreatable secondary tumors, I do not believe that I will be able to resume anything resembling a normal work schedule, or even something around 50%.  My primary focus is on my physical, emotional, and spiritual health.  I intend to draw upon my disability benefits to provide financial means for me and my family in the meantime. 

Thus, for the near future, my plan is to contribute as I can to my law firm, but billing at a substantially reduced pace.  The firm reports to the insurance company each month the number of hours worked, and how much I am paid, then the insurance company makes its determination of whether a full or pro-rated benefit is paid, then it will make its payment.  I'll keep (and continue to pay for) my health care and other benefits through the firm, and keep the door open to a return in the event that I recover and am able to perform a greater amount of work. 

I also will co-teach my law school class this semester, but would not be surprised if this is my last year teaching.  I simply cannot foretell how I will be feeling a year from now.  As I wrote last month, my planning horizon has been reduced to about a year on a rolling basis, and I am increasingly comfortable with that time line. 

As I ramp down my involvement in my legal practice, I expect to increase my involvement in various community, charitable, and religious organizations.  I especially want to spend more time with my family, both at home and traveling.  I have some specific plans, as well as some vague ideas that will take form in the coming weeks and months. As those plans take shape, I will share them as appropriate.