BY DOREEN FRIEL NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION
noted in his 1980 song “Beautiful Boy.” Unfortunately, when certain types of life events strike, your finances can take a big hit unless you’re prepared.
“L ■ Long-term
disabilit insurance. Could you live for months or years without a paycheck? The average worker has a 30 percent chance of being disabled for three months or more during his or her career, and the average disability claim lasts 31 months. Most disabilities, in fact, are caused by medical problems like back pain, cancer, or heart disease not accidents.
Find out what “LTD” coverage you have available through your employer, if any. If you need more, look into a supplemental policy, but be sure you understand all of the terms before buying. For help in making an educated decision, read the Guide to Disabilit Income Insurance available at
publications.usa.gov.
Following are some guidelines for weathering financial hardships without running up large credit card balances or dipping into your retirement savings.
Make sure you’re insured
Having insurance may seem like an obvious first step, but many of us either don’t carry enough coverage or the right type. Here are three kinds to consider:
ife is what happens to you while you’re busy making other plans,” the late John Lennon
■ Life insurance. If you have family members who rely on you, life insurance remains a must. And don’t just limit it to breadwinners if a non-working spouse dies, the surviving parent might need to pay for child care and other assistance.
The question then becomes how much insurance do you need, and for how long? Standard formulas may not give you the best answer, so try a calculator like that offered by
bankrate.com to factor in your unique circumstances.
■ Homeowners/renters insurance. If you experienced theft, fire, or storm damage, could you afford to buy new belongings and fix up your residence? When taking out coverage, make sure it’s regularly adjusted to keep pace with replacement costs. If you live in a region at high risk for earthquakes or flooding, you may need a special policy, as these disasters aren’t covered by most homeowners’ insurance.
Maintain an emergency savings fund
It’s easy to imagine scenarios where you might require emergency savings: a job loss, unexpected medical bills, or unplanned home repairs. Unfortunately, many folks view retirement accounts as “back-up funds,” which is a mistake after being tapped, you greatly shrink retirement savings.
To keep from reaching into retirement plans, many financial advisors recommend socking away six months’ worth of living expenses into a separate savings account and some suggest putting in a full year’s income to compensate for a weaker job market.
Funding an Emergency Help your financial future survive the unexpected
So should you save first for retirement or emergencies? It depends on your situation. If you have some rainy-day money already designated and your employer offers a match on 401(k) contributions, meet the full match and shift anything you were investing above that into your emergency reserve until it’s built up to a safe level. In addition, if you have high-interest debt to pay off, do
that before setting money aside.
The bottom line: Managing financial risks ahead of time can help protect your financial health including your nest egg.
Doreen Friel produces employee benefits-related materials for the Employee Benefits Communications department of the National Rural Electric Cooperative Association (NRECA). NRECA is the Arlington, Va.-based service arm of the nation’s 900-plus consumer-owned, not-for-profit electric cooperatives.
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