Are you a six million dollar man/woman?

Are you a Six Million Dollar Man/Woman?
 
Of course, I’m referring to the wildly popular sci-fi TV show from the 70s, The Six Million Dollar Man. Remember the show? No? Never heard of it? Okay, never mind.

HOW MUCH WILL YOU EARN IN YOUR LIFETIME?

Anyway, did you know that you are indeed a Six Million Dollar Person?

Seriously, you are one if you add up all the income you will be earning in your lifetime.
 
Let’s say you make $100,000 a year today. If you work for another 20 years before you retire and you never get a raise, you will have made $2,000,000 over the next 20 years.
 
Okay, that’s not quite $6 million. But, if you get a 3% raise every year for the next 20 years, the amount will be more like $2.7 million.
 
What if you get a 4% raise every year instead of the 3%? How about 5% raise? What if your current income is $150,000? Or $300,000? What if you work for another 30 years instead of 20 years?
 
You get the drift. The point is, you are worth a lot of money. Or, more accurately, your ability to earn income is worth a lot of money.
 
Let’s call this human capital.

EVERYBODY HAS A PLAN UNTIL THEY GET PUNCHED IN THE MOUTH

Now, let me ask you to think about everything you own today – your house, your 401(k), everything. If you're young, there’s a good chance that your human capital is worth more than anything you own – maybe even more than all your assets combined.  
 
It’s easy to see, isn’t it? Your human capital is your most valuable asset.
 
Now, let’s say you are 45 today and your goal is to retire at 65.
 
So you diligently save money in your 401(k). You resist FOMO and stay financially disciplined and frugal. No fancy cars or expensive travels. You work hard and try to get a promotion and a raise, so you can sock away even more money. You might even go to grad school on the side or get a certificate to increase your earning potential even more. If you own a business, you do the same by trying to grow your business.
 
So far so good…. But, as Mike Tyson said, “Everybody has a plan until they get punched in the mouth.”
 
What if you get sick or injured and you are forced to cut back your hours or you can’t work at all? What if you can’t work – ever?
 
No more income. Six Million Dollar Person no more.  
 
Then there will be medical bills to pay, not to mention your regular bills.
 
You might think it won’t happen to you. And you’re probably right.
 
But it does happen – even to young people. 
 
I recently witnessed two friends who had a stroke. Both are young-ish high income earners; both seemed healthy. One is back at work but is struggling; the other isn’t working and likely will not return to work.
 
Just about everything you plan on doing is largely predicated on one thing: your ability to earn income.
 
As your income goes, so goes your plan.

ENTER DISABILITY INSURANCE

You might argue that you are a human being and there’s so much more to who you are than just your ability to earn income. You refuse to put a price tag on your worth as a human being.
 
Agreed. But then, let’s also just agree that it’s hardly heartless to say that your human capital does have an economic value. It’s a huge number, and definitely worth protecting.
 
Good news is that there’s a way to efficiently protect your ability to earn income.
 
It’s called disability insurance.
 
Oh no, not another insurance, you say. I already pay enough for auto insurance, homeowners insurance, medical insurance, and who knows what else. The last thing I need or want is another insurance policy.
 
Fair enough.
 
But losing your future income potential is serious stuff. It’s nothing like declining an additional warranty on your laptop or insurance on your rental car. Let’s not mess around here. 

SIMPLE CHOICE

Think of it this way. Suppose you have two choices:

• Job A pays $100,000 a year, but with no benefits if you can't work due to an illness or injury.
• Job B pays $98,000 a year, and pays $60,000 a year in tax-free benefits if you're too sick or injured to work.

 
Which job would you go for? I’m guessing Job B.
 
Just like that, you can protect your human capital – your most valuable asset. You simply allocate a tiny percentage of your income to disability insurance.
 
With Job B, your plan just might complete itself.
 
Even if you can’t.
 
What’s not to like?

We do not provide legal or tax advice. Readers should consult their own legal or tax advisor. There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit. Investors should talk to their financial advisor prior to making any investment decision. This information is intended for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.