Disability Income Gap Calculator
Example: Monthly gross income: 6000 $ · Employer LTD benefit (% of salary): 60 % · Personal LTD monthly benefit (tax-free): 0 $ · Estimated SSDI monthly benefit: 1400 $ · Monthly living expenses to cover: 5000 $ · Marginal income tax rate: 22 % · Months you want coverage for: 60
| Monthly income gap | $792 |
| Total gap over coverage period | $47,520 |
| Total monthly benefits (after tax) | $4,208 |
| Monthly income needed | $5,000 |
| Recommended additional monthly benefit | $792 |
Worked example
Earning $6,000/month gross: a 60% employer LTD pays $3,600, but taxed at 22% that nets $2,808. Add $1,400 SSDI = $4,208 total. Against $5,000 in monthly expenses, the gap is $792/month. Over a 5-year disability, that gap totals $47,520 — an amount that would drain an average emergency fund in about four years.
Frequently asked questions
Why is employer LTD taxable but personal LTD tax-free?
When your employer pays the disability insurance premiums, the IRS treats benefits as ordinary income (like salary). When you pay the premiums with after-tax dollars, benefits are received tax-free. Buying a personal supplement with your own money creates tax-free income in the worst moments.
How long does SSDI take to approve?
The Social Security Administration reports a median initial processing time of 7–8 months, and many claims require appeals, adding 1–2 years. SSDI has a 5-month waiting period after the disability onset. Do not count on SSDI to cover the first year of disability.
What percentage of income should disability insurance replace?
Most financial planners target 60–70% of gross income, because expenses typically drop when you cannot work (no commuting, work clothing, etc.). Aim to close your gap to within that range.
How much does supplemental LTD coverage cost?
Individual long-term disability insurance typically costs 1–3% of annual income. For a person earning $72,000 a year, that is $720–$2,160 annually — a significant cost, but far less than the income loss from a prolonged disability.