The Number One Reason for Bankruptcy Might Surprise You

Retirement

The Number One Reason for Bankruptcy Might Surprise You

Posted by RDW Financial Group
5 months ago | May 10, 2017

In a friendly game of Monopoly, bankruptcy can often be solved by a few trips around the board and some good luck. In real life, however, filing for bankruptcy will carry years of consequences. In many cases those who once filed for bankruptcy still feel the impact years later, in retirement. And while we all hope it will never happen to us, the truth is that it can.

You might believe that setting a reasonable budget and spending within responsible parameters keeps you absolutely protected from financial problems. But according to the Kaiser Family Foundation, the leading cause of bankruptcy is actually something that is much more difficult to control. More than one quarter of Americans have trouble paying their medical bills, and that debt leads to more bankruptcies than anything else.

Believe it or not, it isn’t just the uninsured or elderly who face this problem. Last year, 20 percent of insured Americans under the age of 65 experienced difficulty covering for their out-of-pocket medical expenses. They faced some difficult choices too: 42 percent took a second job to pay the bills, while 63 percent used up most or all of their savings.

Obviously, this is a situation that you want to avoid. Even if you manage to scrape through a medical crisis without reaching bankruptcy, your savings might be drained and your retirement plans will be drastically altered. It’s best to plan ahead for unexpected medical expenses, using some or all of the following methods:

  • Set up a rainy day fund, and contribute to it regularly. This should be a savings account, separate from your main retirement fund, so that you never have to borrow from your retirement.
  • Look into a health savings account, and you could enjoy certain tax advantages while saving for medical expenses.
  • Keep an eye on your debt in general. If you’re not already deeply in debt, medical bills won’t hit you as hard.
  • Mind your credit score, so in the worst case scenario you could access a line of credit with a zero-percent or low interest rate.
  • Maintain your health. You can’t prevent all accidents and health problems, of course, but a healthy diet, regular exercise, avoidance of bad habits and safe driving can go a long way.

Much like regular preventive care can keep you physically healthy, meeting regularly with your financial advisor can help you stay financially healthy. Call us to schedule an appointment, and we can review your questions and concerns in more depth.

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