Announcement

Collapse
No announcement yet.

Investing while on LTD payments

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Investing while on LTD payments

    Dr Dahle, I appreciate the knowledge base you’ve built in the WCI community. I found my way here via your podcast, and I sure hope you and others here can help me to stop doing dumb things with my money.

    My questions revolve around investing for retirement while I am receiving long term disability payments. I have an autoimmune condition with a chance of remission, but after 5 years of exhaustive treatment and continued symptoms leading to frequent hospitalization, it’s seeming less likely that I’ll be able to return to the workforce, and not as a physician in my field. My options for investment seem quite limited while I am unable to earn any income. I spoke to a financial planner who told me to consider a variable annuity without insurance components, to be used solely for tax-deferred growth. I was completely unfamiliar with this type of product, so I held off. My understanding is that they tend to be costly ways to invest and I’m not sure it would be worth the tax savings. (I have not yet obtained the specifics on cost and fees for the product recommended by that advisor).

    I do a back-door Roth conversion each year I can’t contribute directly and I max out my HSA contributions each year. I’m in the process of setting up a taxable Vanguard account.

    Also, I have a variable universal life policy that I despise but feel stuck with for another 5 years until the surrender period ends.

    I’m interested in establishing passive income streams (I’ve had not-quite-passive rental income in the past) and utilizing such a side business as a way to invest in self-employed retirement plans. However, my health has not yet been stable enough to do the upfront work of establishing those streams. It’s something I hold as a goal over the next year, likely through some managed “turn-key” real-estate investing.

    Some background and details:
    Age 38, single
    Income: $188k from two own-occupation LTD plans, $125k taxable (W-2 reads “sick pay”) and $63k non-taxable.
    403b: 145k in vanguard and AM funds, $24/mo in fees
    Roth IRA: $46k in a managed account, $20-40/ mo fees
    VUL Insurance- 2M death benefit, $49k cash value, $20k surrender charge, 6% load and a $464 ‘administrative fee’ monthly for the next 5 years yet in addition to $106 policy premium. Basis (I think) is $78k. Contributing $600/mo underfunding for past couple years.
    Savings: $88k in a money market account. $40k should stay as cash reserves (some of my treatments cost about $36k and I cover them while insurance does it’s prior-auth dance). $48k needs to be invested.

    I have a life insurance policy from my previous employer that I am planning to close out on, as I have no dependents. $377k death benefit, $1900/yr premium, after the surrender charge I could cash out $1600. I haven’t closed it out yet while I figure out what I’m going to do with the VUL.

    Debts: $146k school loans at 0.625% (that is not a typo)
    30k car loan at 0% financing
    92k home loan at 4.5%, I’d like to pay it off early.

    Cash flow is quite comfortable with about $5k/mo to invest beyond my current investments. Modifications to my house for accessibility have been completed. My cash reserves are flush.

    The only worry I have is if insurance coverage changes and doesn’t cover a weekly infusion upon which I’m dependent. It’s $14k cash price per week, and $5k for the insurance price. That’s a lot to cash-flow, hence my goal to build up some rental income.

    I need to get this money invested so it’s earning it’s keep! I’m pretty much a newbie when it comes to finances beyond a simple checking and savings account, so I’m not sure the best account to invest in now, and what types of funds to choose within that account. I also don’t know if or how I should get rid of that darned VUL policy. Your insight and suggestions are most welcome!

  • #2
    I'm sorry doesn't quite seem adequate enough for what you're going through. I hope the treatment begins to work soon and thank goodness you have disability coverage. A few thoughts and I'm sure many others will chime in with good advice:

    • Passive income streams by definition do not qualify for employee retirement plans. You must have "earned" income to do so.

    • Given your tax bracket (12% and 25% under the new plan), saving inside a retirement plan is not as critical as it is for many High Income Professionals (HIPs). It's great that you are doing the backdoor Roth maneuver and, while it would be nice to have a bigger stream of tax-free income from a Roth at retirement, I'd focus instead on general growth of wealth targeted to meet retirement goals. For example, invest in taxable accounts, real estate, etc. that will afford you an income stream in the future when the disability runs out (age 65?)

    • What is the purpose of your life insurance? i.e. who do you need to provide for in the event of your death?

    • How many work credits do you have with SS? Will you qualify for benefits at retirement age?


    I recommend you do some research before deciding that owning real estate is preferable to an appropriate investment in equity funds. Not saying which is the better solution, but "passive income" from rental income seems to be accepted as a necessity by some on this forum and I don't like to make a choice without a solid reason for it.

    Don't be in a hurry to "get your money invested" - usually a mistake. You're doing a good job so far. Take your time, research options, maybe talk to a few fee-only financial advisors (please, not insurance agents), and figure out a plan to back up your decisions.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3
      definitely ditch that VUL policy.

      VUL already sucks and if you have no dependents, are not married, and have $5k/mo of excess cash flow and are "back to broke" so to speak you can be FI pretty freaking quick.

      Comment


      • #4
        Welcome and sorry for what you're going through. So glad you had LTD in place to protect you in such a circumstance.

        Does LTD payments count as earned income to qualify towards contrib to a (backdoor) Roth IRA?

        If you're worried about insurance coverage changing, etc., it'd probably be a better idea to keep your investments as liquid as possible--in your case a taxable account. I would also probably err on the side of caution in keeping more of the portfolio conservatively invested and/or kept in cash/savings cushion. Both these moves would help you mobilize funds in the event you end up on the hook for those weekly infusions which add up to ~$56k per month!

        Get rid of that life insurance policy!

        If you're willing to share, I think your story and experience with LTD would make for either an excellent podcast or blog post (or even series) maybe with you telling your story and then fielding Q&A from WCI.

        Comment

        Working...
        X