If you think the disability insurance that your employer provides is all that you need, you may be in for a surprise.
IMPORTANT NOTE: Under current law, 401(k) plans, Keoghs, SEP-IRAs, and IRAs allow you to withdraw money before age 59½ without paying a 10% penalty tax if you become disabled. However, you will have to pay ordinary income tax on the taxable portion of the withdrawal. If the withdrawal is made from a Roth IRA, and the Roth IRA was held for five years, the withdrawal will be tax-free. Taking money out of a retirement plan puts your future retirement income in jeopardy.
IMPORTANT NOTE: When your regular wages stop and disability payments begin, contributions to company retirement plans might not continue. Future lost savings mean you'll have significantly less income in retirement. While you're disabled, you should plan on saving a portion of your disability income.
You should also consider these factors:
Here are some additional disability insurance options to consider:
There are additional financial basics that are equally important in reducing your risks of catastrophic financial loss when a disability strikes. Here are some things you should do before a disability strikes:
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