To protect your savings if you suffer an illness or injury that leaves you unable to work, make sure you have disability insurance.
A recent survey by BenefitsPro.com found that only one-third of Americans currently have a disability policy. Most disability policies that you get through your employer usually cover 40 percent to 60 percent of your salary. This kind of insurance provides steady payments if you become unable to work and keeps you from tapping your retirement savings.
"Think about how much time you think about reviewing your investment portfolio, how you make sure you have auto insurance," Francis said. "Disability insurance is even more important than both of those put together."
If you have no other option than to take money from your retirement accounts to pay for medical expenses, watch out for tax penalties. Normally you'll be hit with a 10 percent tax penalty, in addition to paying income taxes, on money you withdraw from tax-deferred retirement plans before reaching age 59½.
"What most people are aware of is that they will owe income taxes upfront (on early withdrawals) but come tax time if they're under 59½, they're going to add a 10 percent tax bill," said IRA consultant Denise Appleby of RetirementDictionary.com. "So at that time, you want to gather your medical bills and receipts for health care expenses and see if you qualify for any exceptions."
Consult with a financial advisor or accountant, or go to IRS.gov and look up Publication 590B to find the few medical exceptions that apply.
However, that's a last resort. Take the other steps first to help make sure unforeseen medical bills don't drain your retirement.
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