Disability Income Replacement Gap Calculator
Compute the income-replacement gap if you became disabled today: your target monthly benefit (a share of gross income, as a take-home proxy) minus the after-tax sum of projected SSDI, employer long-term-disability (LTD), and any individual disability-income (DI) you already carry. The calculator surfaces the monthly gap, the annual gap, and the present value of that gap over your years to retirement so you can make an informed coverage decision with a licensed broker — it does NOT recommend a specific policy, carrier, or coverage amount. Employer-paid LTD is netted for tax (taxable per IRC §105); employee-paid LTD and individual DI are tax-free (IRC §104). Cited to the Social Security Administration, IRC §86 / §104 / §105, and the Council for Disability Income Awareness.
Your existing coverage replaces only about 53% of your target benefit, leaving a material monthly gap of $2,810 ($33,720/yr). Over 25 years to retirement that is a present-value exposure of roughly $587,171 — for most households the single largest uninsured risk on the balance sheet. Per the Council for Disability Income Awareness, more than 51 million working adults carry no disability income protection beyond Social Security. This calculator surfaces the dollar gap so you walk into a licensed-specialist conversation informed; it does not recommend a specific policy, carrier, or coverage amount. Your employer-paid LTD benefit was netted down for tax (taxable under IRC §105); switching to an employee-paid or individual policy would make that benefit tax-free under IRC §104.
$3,630 pre-tax
Annual gap discounted over 25years to retirement at the real rate entered. This is the total lifetime exposure in today’s dollars.
View the TypeScript implementation on GitHub: packages/calc/src/disability-insurance-need.ts · view tests
What this means
Disability is the risk most working households quietly carry uninsured. Per the Council for Disability Income Awareness, more than 51 million working adults have no private disability income protection beyond Social Security, only about 36% have employer-provided coverage, and the average long-term disability absence runs roughly three years. The gap this tool computes is the monthly income your existing coverage would fail to replace — and the present value over your remaining work life is, for most households, the single largest uninsured number on the balance sheet.
Two structural facts drive the gap. First, SSDI uses the strict any-occupation standard and replaces only a fraction of pre-disability income — the SSA reports the average 2026 benefit is about $1,630/month. Second, group employer LTD is usually paid with pre-tax employer dollars, which means the benefit is taxable under IRC §105: a $5,000/month gross LTD benefit nets closer to $3,900 at a 22% marginal rate. Individual disability policies you pay for personally are tax-free under IRC §104, so a dollar of individual DI covers more gap than a dollar of employer-paid LTD.
When I model disability exposure, the number that changes the conversation is never the monthly gap — it’s the present value of that gap over the years to retirement. A monthly shortfall that looks manageable in isolation becomes a six-figure exposure once you discount the full stream to today’s dollars. That is the figure worth carrying into a conversation with a licensed disability specialist. This tool does not recommend a policy, carrier, or coverage amount — it computes the gap so the conversation starts from a real number.
Worked example
A 40-year-old earning $120,000 gross targets 60% replacement, so the target monthly benefit is $120,000 ÷ 12 × 0.60 = $6,000/month. They expect $1,630/mo of SSDI and carry $2,000/mo of employer-paid LTD (taxable per IRC §105) at a 22% marginal rate; no individual DI.
Covered after-tax:$1,630 + $2,000 × (1 − 0.22) + $0 = $1,630 + $1,560 = $3,190/month. Monthly gap:$6,000 − $3,190 = $2,810. Annual gap: $2,810 × 12 = $33,720. Coverage ratio is $3,190 ÷ $6,000 = 53% — red.
Now the exposure. With 25 years to retirement (age 40 → 65) and a 3% real discount rate, the annuity present-value factor is (1 − 1.03−25) ÷ 0.03 = 17.41. The present value of the gap is $33,720 × 17.41 = ~$587,000. That is the figure to weigh against the cost of additional coverage — and if the same LTD were employee-paid (tax-free under IRC §104), covered after-tax would rise to $3,630/mo, cutting the monthly gap to $2,370. This calculator shows the gap; it does not recommend how much coverage to buy.
Frequently asked questions
The information and tools on this website are for general educational purposes only and do not constitute financial, investment, legal, or tax advice. Consult a licensed professional for decisions specific to your situation.