How do I improve my financial situation if my health limits my ability to work?
What should I do to improve my financial situation if my health issues severely limit how much I can work? It has led to $200,000 of debt. I am barely breaking even each month, and there is no expectation of my health getting better. At 40 years old, I've spent my retirement savings staying alive, and have none. What should I do to improve my financial situation and where do I start?
Joshua Escalante Troesh, CFP | MBA
I'm so sorry to hear you've gone through such a difficult time, fortunately there are things you can do. The following are planning tools you can use to prepare yourself financially for your future. Additionally, for others reading this, I'll add in things they can do to avoid similar issues in their future. You may also want to talk with a fiduciary financial planner who can advise you based on a full picture of your unique situation.
Consider Bankruptcy
I know it's not ideal, but you should seriously consider if bankruptcy is the right decision for you. With $200,000 in debt and a significant limitation on your income, the reality is you could spend the next few decades just getting out of debt and retiring with nothing. The debt is a significant anchor weighing you down. A bankruptcy will allow you to hit reset on your financial life and allow you to build your financial situation from a fresh start. Contact a bankruptcy attorney or two in your area and talk with them about your options. You can also schedule a free meeting with me to have a basic plan in place to make the most of the reset.
You are not alone! The number one reason people declare bankruptcy is for medical debts. You had a horrible event happen to you, the debt wasn't your fault, and bankruptcy was made for people in exactly your situation. And if you were a client, this would be the first thing we would work on together.
Explore Disability Income
Since your health is limiting your work, you should explore disability income from Social Security and other programs. Contact Social Security even if they have previously denied you, and potentially have your bankruptcy attorney or a financial advisor help. There are two Social Security disability programs, Social Security Disability (SSDI) and Supplemental Security Income (SSI). The agents can't give advice, they can only answer specific questions. So, if you don't qualify for SSDI but do qualify for SSI, they will say you don't qualify if you ask if you can get Social Security Disability Income. Similarly, you should check to see if your state offers additional disability income for which you can qualify.
Your situation highlights why disability insurance is important. Very few people have the insurance because it's expensive, but the value is incredible in situations like this. If you didn't have a policy, check with your most recent employer in case they had a disability policy for you as part of the benefits package and you just weren't aware of it. If the health issue was related to work, you should also file a claim with the employer's workers’ compensation insurance.
Begin Replenishing Workplace Retirement Plans
With whatever work you can do, try to maximize the contributions to the workplace plan even if it's a small amount. This will be important for two reasons. First, you will need to prepare for your retirement with whatever means you can. Second, if you declare bankruptcy, having savings in a retirement plan can help shield the funds from creditors. Plans covered by ERISA (like 401k and 403b plans) are generally immune from lawsuits. This means if you have to declare bankruptcy, your creditors cannot touch your retirement savings. Generally, fiduciary advisors prefer not to have clients spend down retirement accounts in emergencies for this reason.
Get Health Insurance
Another priority should be to get health insurance to minimize future events like this. If your income is low enough, explore Medicaid through your state. If you qualify for Social Security Disability, you may also qualify for Medicare insurance. If you don't qualify for either, look for a new job that offers health insurance or make quality health insurance a part of your budget.