Long-Term Disability Income Gap Planner

Why Long-Term Disability Planning Matters

A long-term disability that interrupts your income can be financially devastating. Paychecks cover essentials like housing, groceries, and healthcare. If a chronic illness or injury prevents you from working for months or years, the loss of income may force you to tap retirement accounts, liquidate investments, or take on debt. Employer-sponsored long-term disability (LTD) policies help by replacing part of your salary, but those benefits often cover only 50% to 60% of gross pay and may be capped at specific dollar amounts. Supplemental individual policies can fill some of the gap, but only if you understand the income shortfall you are trying to protect. This planner helps quantify the difference between your cash needs and the benefits you would receive during a disability so you can adjust coverage, savings, or lifestyle assumptions in advance.

Many households underestimate the risk of long-term disability. The Social Security Administration estimates that one in four 20-year-olds will experience a disability before retirement age. Yet, millions of workers rely solely on employer coverage without knowing the fine print. This calculator aims to demystify LTD planning by converting policy percentages and benefit caps into after-tax monthly income, aligning the math with the expenses you enter. It also shows how elimination periods—waiting times before benefits begin—affect emergency fund requirements.

How the Planner Calculates Income Gaps

The core of the planner is a monthly cash flow comparison. First, the calculator converts your annual salary into a monthly base. It applies employer and supplemental benefit percentages, respects policy caps, and adjusts for taxation because most employer-paid benefits are taxable. Any cost-of-living adjustment (COLA) rider is compounded annually for the chosen benefit duration and averaged monthly to show the income path over time. Finally, we subtract your recurring expenses to reveal the monthly surplus or deficit.

The calculations follow this structure:

Each benefit figure represents the lesser of the policy percentage times monthly salary or the policy cap. Taxes apply to employer-paid benefits but often exempt individually paid policies; to reflect that nuance, the calculator only taxes the employer benefit and lets you simulate after-tax supplemental payouts. During the elimination period, no benefits are paid, so the emergency fund must cover expenses. The calculator subtracts emergency savings from total expenses during the elimination period to show how many days of cushion you hold.

Scenario Modeling and CSV Output

After running the calculation, the planner produces a table that illustrates income gaps under three disability durations: one year, three years, and the full benefit duration you selected. Each row displays average monthly benefits, the deficit relative to expenses, and the total cash shortfall over the period. The CSV download provides the same data for financial advisors, HR teams, or spouses to review together. Tracking these scenarios helps you weigh whether to add supplemental coverage, increase savings, or trim expenses.

Worked Example: High-Earner in a Specialized Field

Imagine a software architect earning $180,000 per year with $7,500 in monthly expenses. Their employer pays for a 60% LTD plan with an $8,000 monthly cap. Because the benefit is employer-paid, it will be taxed at an estimated 24% effective rate. The architect also owns a supplemental policy paying 15% of salary up to $5,000 tax-free. With a 90-day elimination period and $25,000 in emergency savings, the calculator shows that the employer benefit nets about $5,472 per month after tax, while the supplemental policy delivers the full $2,250. Combined, the benefits total $7,722, leaving a small $-222 monthly gap compared to expenses. Over a five-year disability, that shortfall would grow to nearly $13,320, suggesting the architect should either raise supplemental coverage or trim expenses. The elimination period analysis reveals the emergency fund covers approximately 100 days of expenses—just enough to bridge the waiting period but leaving little buffer for unexpected medical costs.

Comparison of Coverage Strategies

The table below compares three common LTD planning approaches:

Guidance for Using the Planner

For accurate results, gather your policy certificates and review the definitions of disability, benefit percentages, and caps. Some employer plans offset Social Security Disability Insurance (SSDI) or workers' compensation benefits, reducing the amount paid. If your policy includes offsets, you can approximate them by lowering the employer benefit percentage in the inputs. Consider running separate scenarios for own-occupation and any-occupation definitions; the latter may terminate benefits sooner, increasing the long-term gap. Enter realistic living expenses that include health insurance premiums, childcare, debt obligations, and savings goals you plan to maintain during disability.

COLA riders can significantly reduce long-term erosion of benefits. If your policy lacks a rider, inflation will gradually widen the gap. Use the COLA input to test how a 2% or 3% annual increase changes the total shortfall over a decade. Remember that adding a rider usually increases premiums; weigh the cost against the improvement in cash flow security.

Emergency Funds and Elimination Periods

The elimination period is a critical component of disability planning. During the waiting period, you receive no benefits and must rely on savings, short-term disability, or other resources. The calculator evaluates how many days of expenses your emergency fund can cover by dividing the fund by daily expenses. If the elimination period exceeds your coverage, the result flags a shortfall, encouraging you to increase savings or reduce the elimination period (which may raise premiums). Even if your emergency fund covers the period, remember to account for medical costs, therapy, or adaptive equipment that may arise before benefits kick in.

Extending the Analysis

Use the CSV export to collaborate with financial planners or partners. Advisors often stress-test the plan by modeling a partial return to work, stacking Social Security benefits, or adding spousal income. You can simulate these adjustments by reducing expenses or manually adding supplemental benefits to reflect alternative income sources. Keep copies of the CSV output to document how your plan evolves as salary, expenses, or policy terms change.

Limitations and Assumptions

This planner uses simplified tax treatment and assumes employer-paid benefits are taxable while supplemental policies you pay with after-tax dollars are not. Consult a tax advisor for your specific situation. The COLA calculation assumes annual compounding and evenly distributes the increase across months; actual policies may adjust benefits annually on the policy anniversary. The model does not incorporate Social Security disability offsets, residual benefits, or partial disability provisions. If your policy includes rehabilitation incentives or work incentives, adjust the inputs to reflect reduced benefits. The emergency fund analysis treats savings as fully liquid and ignores investment volatility; in reality, market downturns could erode available cash just when you need it most.

The calculator also assumes your living expenses stay constant throughout disability. Many households experience higher healthcare costs or require caregiving assistance, increasing expenses beyond baseline budgets. Run additional scenarios with inflated expenses to gauge the impact. Finally, disability definitions vary widely. Some policies pay benefits only if you cannot work in any occupation, while others focus on your own occupation. The planner cannot determine claim eligibility, so always review policy language and consult with a licensed insurance professional before making coverage decisions.

By quantifying your disability income gap today, you can take proactive steps—securing supplemental coverage, boosting emergency savings, or negotiating better employer benefits—to protect your financial stability even if health challenges arise.

Another planning tactic involves integrating disability coverage with retirement savings strategies. Some employers offer the option to continue 401(k) contributions while on disability, but only if you maintain a minimum income level. By mapping your gap in this planner, you can verify whether benefits would satisfy the contribution threshold. If not, consider increasing Roth IRA contributions while healthy to build tax-free reserves. Financial planners often recommend aligning disability coverage with debt payoff schedules so that large obligations such as student loans or mortgages are reduced during healthy years, lowering essential expenses later.

You can also use the planner to stress-test dual-income households. Enter the combined expenses but adjust the salary input to reflect only one partner's income, then add a supplemental benefit representing the healthy partner's ability to increase hours or take on side work. Comparing the gaps between dual- and single-income scenarios reveals how much lifestyle compression might be necessary during a health crisis. Recording those findings in the CSV output and revisiting them annually ensures that as incomes rise or debt falls, your disability protection strategy evolves rather than remaining static.