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    Don’t Let a Disability Come Between Your Employees and Their Retirement

    Don’t Let a Disability Come Between Your Employees and Their Retirement

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    You probably know how important it is that your employees have a plan in case they can’t work for a long period due to an illness or an injury. And you probably also know that the most important part of that plan, is making sure they’ll have enough money to meet their essential expenses. But what you may not have thought about is the impact a disability could have on their retirement savings and how you can help them take steps to keep their planning on track.

    How a Disability Affects Their Retirement Plan

    If they had a serious illness or injury and had to stop working for an extended period of time, their first order of business—after taking care of their health—would be taking care of expenses like housing, groceries, utilities, transportation, medical costs, etc.

    A group long-term disability insurance program can help them with this, as can government programs like Social Security Disability. But if their monthly income from these sources is only covering basic needs, and if they have added expenses like medical bills, it may be hard to continue saving as much for retirement as they were prior to becoming disabled.

    If the centerpiece of their retirement savings is a 401(k) plan that they get through your company,they won’t be able to make any more contributions, since they’ll no longer be an employee. Any matching contributions they were getting from your company are off the table, too.

    The Effect of Disability On Your Savings

    So, just how big a difference does it make to stop saving for retirement? Here’s a hypothetical example:

    Edward, at age 35, begins making a $875 monthly contribution to a defined contribution plan, such as a 401(k) plan ($10,500 annually).

    Normal Age Retirement

    Edward makes 30 annual payments of $10,500. At age 65, his defined contribution plan totals $1,189,474.1

    Disabled without Protection

    Edward becomes totally and continuously disabled at age 40 without protection. Prior to disability, Edward made five annual payments of $10,500 into his defined contribution plan. No further payments are made after disability strikes. At age 65, his defined contribution plan totals $421,861.2

    Using Disability Income Insurance to Help Protect Your Employees’ Retirement Savings

    At MassMutual, we have a way to help your employee continue saving for retirement if they become too sick or hurt to work – RetireGuard®. And while it’s not a retirement plan, nor a substitute for one, it can help replace an amount equal to the contributions that would have been made to their retirement plan if they  had not become totally disabled.

    With RetireGuard, your employees may be able to insure an amount equal to 100% of their present contributions to their defined contribution plan, including the matches that your company makes (maximum benefit amounts are based on current IRS defined contribution maximums). During a period of total disability, eligible benefits will be paid monthly into an irrevocable trust account at The MassMutual Trust Company, FSB. As benefit payments are made to the trust, the employee has the ability to invest these funds into a broad list of publically traded securities, so that they can select the investment strategy that best meets their retirement goals. The trust proceeds are paid out at retirement age according to the terms of the Trust; retirement age is generally tied to the end of the benefit period chosen.3

    Disabled with Protection

    Edward becomes totally and continuously disabled at age 40. Prior to disability, Edward purchased RetireGuard, and made five annual payments of $10,500 into his defined contribution plan. Beginning 180 days after disability, monthly benefits of $8754 are paid into a MassMutual Trust account. At age 65, the combination of his defined contribution plan and the Trust account totals $972,425.5

    Protecting Your Employees’ Retirement Savings

    A disability doesn’t have to get in the way of your employees financial security later in life. With good planning, they can make sure that even if they have to stop working for a long time, their retirement savings strategy will stay on track—and they’ll have one less thing to worry about.

    1 Assumes contributions are made monthly and grow at an 8% annual percentage rate. This does not represent the return on any particular investment. Note: 8% annual percentage rate is a hypothetical rate. Rates of return are not guaranteed.

    2 This assumes the insured became totally and continuously disabled at age 40 until age 65; therefore, he was not able to continue making contributions to his defined contribution plan.

    3 Age 65 or 67, depending on chosen benefit period.

    4 Assumes the RetireGuard premium was employee paid on after-tax basis and the disability benefits are non-taxable.  This also assumes that any taxes incurred on the trust investment earnings are paid by the grantor/insured out of other funds.

    5 This assumes the insured suffered an illness or injury at age 40 that prevented him from working through age 65 and had RetireGuard, after satisfying a 180-day waiting period where contributions were made into a trust account that earned at a 6% after tax rate of return. Rates of return are not guaranteed.

    RetireGuard Individual (Policy XL-IS-92 with EDI-10) and XL-IS-92(NC) with EDI-10 in North Carolina) and RetireGuard Multi-Life (Policy Form ICC13XLSME with ICC13EDI10 and XLS-ME-04 with EDI-10) are issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001. Policies have exclusions and llimitations and are subject to state availability. For costs and complete details of coverage call your agent or MassMutual at 1-800-272-2216 for a referral to an agent.

    New York Policies: RetireGuard Individual and RetireGuard Multi-Life policies provide disability income insurance only. They do NOT provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. The expected benefit ratio for a RetireGuard Individual policy is 52% and a RetireGuard Multi-Life policy is 60%. This ratio is the portion of future premiums which the company expects to return as benefits, when averaged over all the people with these policies.

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