Is it every ok to take out of retirement early?

[mom-from-missouri]

Husband has had a great job for almost 39 years. April of 2014, he, along with a bunch others, lost their jobs. Since then all he can find are jobs that don't pay more than $10 an hour. He had been making over $40 an hour and free insurance.

He had been planning to retire next year. But, with the job gone, so is the pension. He does have a nice 401K. We had been putting a very large chunk of his pay into his 401K and company stocks-as much as was allowed. We should have had some of it where we could get it now, without paying taxes and fines.

So, he is working a $10 an hour job, and I found one for $12 an hour (almost unheard of around here to make $12). Well, yesterday, I walked off my job. I refuse to be called an idot by an uneducated biker woman manager who constantly uses foul language at work in front of customers and other staff. I had just had enough. So, I quit. I had only started in December, so there 2 months only.

I have had 2 other interviews that went real well. Very well, and one had me do a drug test and background check, so almost 100% sure I have it. It pays less, but is local, so less fuel, better hours, 3 blocks from my childrens school, day ours and off Sundays. It is also a very nice environment to work in. Taking out no uniforms, less fuel, being able to take a lunch and eat it there--I actually will be bringing home slightly more money than I was before. IF I get the job

Needless to say, its been tight, but we are making it. If it gets to the point that we are not....is it ok to take out of the 401K? Or do we just suck it up and sell off the children?? What to do? In May, rental income will start coming in. We will be needing to pay taxes soon as well.

Nothing left to cut back on:

Trash $0 (we burn and recycle)

Sewer $0 we have a septic tank

Water $40 as we supplement with well for cattle, car washing and garden use

Electric $150

Propane $1200 a year

Mortgage on land $225 month (can't sell this land, as it is landlocked to where we live)

mortgage on rental house $560 month (just got a contract and renters will be moving in on May 1 paying $1000 a month) This is the house that tenants tore up and it took us over a year to get rent-able again. New tenants will take good care, as it is my daughter who is getting married and also niece and friend will be living there as well, as its a 4000 sq foot home with an apartment area.

Dish Network--free (we dropped it and it still works...called them twice and they argue they can't turn it off because its already off....so, we have free dish...)

Internet $49 a month, which I pay for from doing surveys--can't drop it because some of daughters college classes are online

Cell phones $200 month (for family of 7-kids too young to pay for own, can't break contract-we tried-this is just basic with one smart phone as husbands work requires it). We tried to switch to sprint to cut it down, but sprint phones don't work here.

Auto insurance for 4 vehicles $300 month

My car payment $80 per week, with less than 4 months left on it.

Food $75 per month (yes that is right because we grow our own meat, fish, can our own food and bake from scratch)

Gas to and from work, school $200 month


Income:
Early retirement from my first job $726 month (goes up 10% every April until it tops out at age 67)
SS (from my daughters father passing away) $1200 month for 18 more months then they turn 18
Husbands income $1000 a month (his take home after taxes and insurance come out)
My income (was anywhere from 200 wk to 1000 a week as my hours were anywhere from 20 hrs a week to 80)

I also write for extra income, do childcare at times, and husband and I also work events during the summer. So income will improve this spring.... The husbands health has not been good, so he has only been working 40 hrs.

Any suggestions??

[doingitallwrong]

How old is your husband? If he turned 55 or older in 2014, he should be able to take distributions from his 401(k) without the 10% penalty. (It must be from the 401(k), though; if you roll that over to an IRA, the exception no longer applies, and any funds taken from the IRA are subject to the 10% penalty if he is under 59 1/2.)

Of course the ideal is not to touch the retirement money until you retire, but if you can avoid the penalty it's certainly a better option than taking on credit card debt. (Unless you have a low-rate credit card; then you need to balance the tax you'd pay on the 401(k) distribution and the amount it would earn if you left it invested vs. the interest you'd pay on the credit card.)

Your expenses look quite low to me, though others might have some suggestions. The only thing that seemed a little high was the auto insurance, which may be in part due to having teenage drivers. Can you raise your deductibles? Drop to collision-only or PLPD coverage? Have you shopped insurance lately to see if you might get a better price somewhere else? Does that amount include your homeowner's insurance? (I don't see it listed in your expenses, and generally having both auto and homeowner's with the same company will give you a discount.) Our auto insurance company gives a discount if we promise to wear seatbelts, take a defensive driving course, work within a certain distance from home, have a good credit score, etc. From what you've done so far to cut expenses I'm sure you've already addressed all this, but just in case!

[LivingAlmostLarge]

How old are you? When you do think you'll retire? When will you take SS? What do you have for retirement? What do you owe on the house?

[mom-from-missouri]

How old are you? When you do think you'll retire? When will you take SS? What do you have for retirement? What do you owe on the house?

Early 50's, he was going to retire this year, but since he lost his job and his pension, who knows now.....roughly 1 million in 401k, plus another 50k in other investments. We have 2 farms a rental, and our home. We owe nothing on our home, but do on land that is attached to it, about 20k. That land now has to go with our home, as it is landlocked by us all around and legally can not be sold off due to rezoning laws for this area that everything must be in 120 acre plots.

[MonkeyMama]

Yes, certainly. FWIW, my parents retired unexpectedly (about a decade early) due to health problems and lack of employment. Age 57? I'd say they panicked a bit initially but have quickly transitioned into a *very* comfortable retirement. That said, they saved far beyond their 401k and IRAs, so they did not have to touch any retirement assets. (Maybe will never have to...). If they had to touch their retirement in the short run, it would have been fine. The important thing is that it might make more financial sense to borrow money than to pay penalties and higher taxes on retirement withdrawals. (But you said you had access to some funds penalty-free?)

My lingering question is what is your outlook for social security income?

I personally don't know that I would work full-time for $10k per year if I had seven figures saved for retirement (& if I had health problems, more to the point). But that's easier for me to say after watching both our parents retire very comfortably, way earlier than they ever planned. The reason my parents are doing so well is that social security at age 62 is more than enough for them to live off of *very* comfortably. That is why I ask about social security. I understand it's the never-ending catch-22 that you don't want to rely on it. But if it would ease some stress... They aren't going to take social security away from anyone who has paid into it for 40 years. Certainly not any time soon.

If no social security options, just keep in mind that small withdrawals from retirement can be done while the bulk of it continues to compound. You wouldn't want to start drawing down 4% at your age, but 1% may be fine. Due to your age you will have to just carefully consider penalties.

[mom-from-missouri]

All of it has a fine if removed early, except for a few stocks, and they don't amount to all that much.

[mom-from-missouri]

Your expenses look quite low to me, though others might have some suggestions. The only thing that seemed a little high was the auto insurance, which may be in part due to having teenage drivers. Can you raise your deductibles? Drop to collision-only or PLPD coverage? Have you shopped insurance lately to see if you might get a better price somewhere else? Does that amount include your homeowner's insurance? (I don't see it listed in your expenses, and generally having both auto and homeowner's with the same company will give you a discount.) Our auto insurance company gives a discount if we promise to wear seatbelts, take a defensive driving course, work within a certain distance from home, have a good credit score, etc. From what you've done so far to cut expenses I'm sure you've already addressed all this, but just in case!

this is all our insurance-cars, tractor, farm, homeowners and such--for 5 drivers. This fall, after daughter is married, she will come off, but that will only lower it $69 a month. Our deductibles are already 500 or 1000 each. We actually have comparison shopped, and use 3 different companies for the best rates we could find.

[AnotherReader]

Why is the pension gone? Did the company go bankrupt? Your husband may be entitled to a portion of his pension through the Pension Guaranty Benefit Corporation if the plan was insured. There may also be litigation pending against the company on the pension issue.

The PBGC website is here: http://pbgc.gov/ You can search to see if the plan was insured.

[mom-from-missouri]

Why is the pension gone? Did the company go bankrupt? Your husband may be entitled to a portion of his pension through the Pension Guaranty Benefit Corporation if the plan was insured. There may also be litigation pending against the company on the pension issue.

The PBGC website is here: http://pbgc.gov/ You can search to see if the plan was insured.

The pension was 100% company paid. Their policy says if you leave the company for any reason, including cutbacks, layoffs....before age 57, it stays behind. The company quit offering the pension about 15 years ago, so the new guys coming on for the past 15 years were not even offered one.

[MonkeyMama]

Well, it's hard to provide useful advice without knowing all your potential income streams for the long run (or your general long-term income needs). But, overall, the big no-no with early retirement withdrawals is that most people tend to take them when they already have significant incomes. Which means not only do they pay early withdrawal penalties but also high tax rates. It's just really one of the worst options for gaining liquidity, if 40% or whatever has to go to the government. A high-interest credit card could be a better deal.

In your case, doingitallwrong gave good advice. You can tap the 401k at 55 if you keep the 401k where it is.

If things get more dire though, I wouldn't sweat the retirement distributions. You may be stuck with a 10% penalty, but if you have no income to speak of then you might not even pay any taxes on retirement distributions. Which effectively just means a 10% "tax". If you consider the penalty a tax. In your case, you won't be forking over 40% to the government.

This reminds me one reason why early retirement can be so financially beneficial. It can be very tax advantageous. Most people (on a forum like this) plan for a highly taxed retirement and thus have to save a LOT more for retirement. That is a really huge part that I left out of my last post. Roughly your first $20k of income is tax-free (standard deduction and exemptions) - assuming no big deductions and kids over 18. The next $20k would only be taxed at 10%. Even if you get stuck paying 10% tax + 10% penalty, that is not a significant overall tax rate.

From a tax planning standpoint, it could make more sense to pull out some money from retirement while you have kids under 18. You probably have a lot more 0% tax space at the moment. Whereas later if you make $20k and pull out anything from retirement you will have to pay 10% tax + 10% penalty. (You'd have to do some careful planning though because above a certain amount the social security would become taxable). There is also a retirement tax break where if you move money over to a ROTH (which is easily accessible) you could get a significant tax credit. These are good scenarios to run through in December of this year to see if you can take advantage of once you know what your income looks like for the year.

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Retirement-Savings-Contributions-Credit-%28Saver%E2%80%99s-Credit%29