Pink Slipped by Edie Milligan Driskill

Author:Edie Milligan Driskill
Language: eng
Format: epub
Publisher: Penguin USA, Inc.

Should You Spend Any of Your Retirement Funds?

The short answer is no. The long answer is no, no, no. It may look appealing to take money from a 401(k) plan and pay off high-interest debt. What I have seen in my financial counseling practice is that the probability is high that you will continue to use high-interest vehicles to fund large purchases and then have no retirement fund.

If things have gotten to the point where you are considering declaring bankruptcy, and cashing out your pension funds will cause you to avoid that, then there may be some rationale. However, if it doesn’t fix the problem entirely and you have to declare bankruptcy anyway, remember that your pension-plan funds were exempt from seizure in the bankruptcy proceeding as long as they were still in your employer’s plan.

It might make more sense to reorganize your debts using a credit counselor or a Chapter 13 trustee than to sacrifice your retirement security. This, again, is a mismatch of the problem and solution. You’re choosing a long-term solution to fix a short-term problem. And cashing out this money usually only delays by a month or two an inevitable decision, such as selling the home, moving, or getting a second job. Its tax-deferred status makes it the most powerful tool in your quest for financial security. Cashing it out is very expensive and you’ll never regain what you’ve lost.

MY BEST ADVICE

Whatever financial pain you are going through, it is not as bad as the pain you will feel during retirement when you are missing this money. It is much better to suffer your consequences now, when you are young and healthy, than to try to find solutions when you are old and broke.

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