It won’t happen to me. If that’s your thinking with regard to disability, you may want to reconsider. According to the Council for Disability Awareness, American workers on average think they have only a 2 percent chance of suffering a disability during their career. The truth is that the average worker has a 25 percent chance of missing work because of disability.1
Disability can be caused by many different health challenges. You could be involved in a serious accident. You might suffer an illness, like cancer or heart disease, that forces you to take time away from work. You may have chronic pain that increases in severity as you get older.
How would your finances be impacted if you were forced to take months or even years off work? You might assume that you could count on Social Security disability benefits. However, those benefits are often capped and may not be sufficient to support your lifestyle.
Fortunately, there are actions you can take to protect yourself and minimize the financial fallout of disability. Below are three such steps. If you haven’t incorporated these ideas into your financial plan, now may be the time to do so.
Create an emergency budget.
A budget is always a valuable financial tool. You can use it to track your spending, gauge your progress toward financial goals and inform your buying decisions. If you don’t have a budget, it may be difficult to have a clear understanding of your finances.
In addition to a regular budget, consider creating an emergency budget. This is a scaled-back version of your budget that cuts unnecessary spending. For example, your emergency budget may include reduced spending on things like dining out, shopping and other discretionary costs.
The key is to create your emergency budget before an emergency happens. That way, should you become disabled, you can immediately implement your spending cuts.
Build a larger emergency fund.
You likely already know how important it is to have an emergency fund. It’s generally advisable to keep enough money in reserve to fund a few months of living expenses. However, you may need to fund more than a few months if you become disabled. According to the Council for Disability Awareness, the average disability claim lasts nearly 33 months.1
If you’re nearing retirement, it could be especially helpful to have a big enough emergency reserve to fund a year or more of expenses. That way, if you’re forced to retire early, you can use the reserve fund to bridge the income gap without tapping into your retirement savings.
Use disability insurance.
Finally, disability insurance may be the most effective way to minimize disability risk. Disability insurance pays you a monthly benefit if you are ever forced to leave work because of a physical ailment.
There are short-term policies that pay benefits for several months, and there are long-term policies that could pay benefits potentially all the way up to age 65. Disability insurance policies have a wide range of adjustable features, so you can create a policy that meets your needs and fits into your budget.
Ready to develop your disability protection plan? Let’s talk about it. Contact us today at Bam Advisory Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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