Cash out my 401(k)?

[gaelguy11]

Hi, I'm 26 years old and find myself in a little bit of a jam at the moment. I've been out of work for about 7 months, just been starting to interview in the last couple with some insurance brokerage firms here in SF, but find my bank account balances very low and at a point of not knowing what to do next. I still have unemployment coming in every couple weeks but don't think its enough to cover my rent, car insurance (needs work done too), other monthly bills, and be able to eat still. Might be ok for this next month, but if the right call doesn't come this week, I'm unsure if I will even have enough money to get by without cashing it out.

I've been trying to caddy on the side here and there to make some extra money but still don't know if its enough, and as a serious amateur golfer (really one of the only things I do in my spare time), would like to continue playing in tournaments this summer. I've been working on a budget recently, still feel like I need to get better at it since I'm not the best at tracking every penny I spend, but once I'm in my new apartment and have a better routine to stay on top of everything, I feel like this might be one of the consequences I pay for what I've done the last 4 or so years.

I have about $40K in my 401(k) and know that I will take quite a hit if I decide to cash it out, but feel the security it will provide for me now is the price I have to pay in order to begin to actually live my life. Obviously I'll be giving up some dollars in the long run, but my hope is when I start working again I won't ever have to touch my new 401(k) again. I don't have kids, no girlfriend or mortgage to pay, should I go ahead with it if I will feel comfortable or will I regret it years from now? Any thoughts or advice are greatly appreciated.

[disneysteve]

I would not touch the 401k.

Have you slashed every possible expense from your budget? Other than caddying, what have you been doing to earn money the past 7 months? Have you delivered pizzas or newspapers? Mowed lawns? Signed up with a temp agency? Done substitute teaching? Started selling things on ebay or craigslist?

You mention golf. Have you played at all since losing your job? How much does that cost each time?

You will lose about 35% of the 401k balance if you cash out. Is it really worth paying $14,000 to get access to $26,000? I don't think so.

[Petunia 100]

No, no, a thousand times NO.

If it is hard for you to track where your money goes, then start using cash. Determine what you can spend on food, gas, and whatnot each week. Take that money out of the bank in cash. When it is gone, it is gone.

If you can't afford your rent on your income, get a roommate or find a less expensive place.

At age 26, if you are investing your money reasonably well, it is quite possible your 401k money will double 4-5 times before you actually retire. If it doubles 4 times, that is 640,000 you threw away. If it doubles 5 times, that is 1,280,000 you threw away. Is that really in your best interest? Don't do it!

However, I do suggest you consider rolling your old 401k plan to an IRA with a quality, low-cost custodian (such as Vanguard). 401k plans too often have outrageous fees.

[gaelguy11]

Thanks for the response Steve. I definitely have not been doing as much as I could during this time off which is a frustrating thing to say. Being laid off and not knowing if I wanted to continue in the same line of work has been tough but also a great learning experience. The first few months I was enjoying the break, playing as much golf as possible actually to see if that was a direction I wanted to go. I considered moving to AZ to work in a golf shop and chase my playing dreams, but realized that would involve leaving many people and a city I love behind.

Obviously I would have hoped to know what direction I wanted to go sooner to be able to create a solid plan and a way to organize my time effectively so I didn't end up in this position. However, I've been dealing with some personal issues during this time which I've found is a lot of the reason why I am in my current position, and also why I am so bad with handling my money. I just hate that it took me so long to find out my issues and this feels like the only way I can start fresh and not continue to beat myself up. Golf is something I'm not ready to give up as I've put so much work into it and know there is so much more I'm capable of. Sounds stupid, but seriously, I've never had the right equipment or practiced effectively and I feel this is a way I can feel comfortable knowing years from now I did everything I could to see what I'm capable of, if it works out great, if not, I'm willing to live with the consequences. The easy answer is to wait and save for that sort of stuff, but not knowing if the unemployment money will even be enough to pay for rent if I don't get this job soon enough, this would at least give me the cushion I need, ease of mind I'm playing at my full potential, and then start my new plan once I start working again.

This is what the love of golf does to someone, don't ever take up the game before knowing what you're getting yourself into.

[photo]

I've been working on a budget recently, still feel like I need to get better at it since I'm not the best at tracking every penny I spend, but once I'm in my new apartment and have a better routine to stay on top of everything, I feel like this might be one of the consequences I pay for what I've done the last 4 or so years.

The new apartment has much lower rent and utilities, right?

The only way I'd cash out a 401(k) is if I had a serious illness and had absolutely no other way to fund medical treatments that insurance refused to cover.

Using your retirement to cover your spendthrift hobbies would be one of the most foolish decisions you will, in retrospect, ever make.

Besides finding a job, the best financial decision you can make right now is to cut every expense you have to the bone. As a healthy young male, you will not be able to rely on welfare or any other government gifts, so you will be SOL when unemployment dries up. Beware.

[emanon1501]

Once again I am going to play devil advocate.

You are 26 years old, plenty of time to build up your 401K again if you choose to make the really bad decision and you will regret it in the future.

BTW, 40K for 26 years old is pretty darn impressive. Cashing out now, you will lose the potential to earn hundreds of thousands of dollars over the next 36 years.

[gaelguy11]

Yes, my new apartment will be much cheaper than my current place. I know once unemployment runs dry I'm on my own and am doing my best at watching my spending. I'm supposed to hear back from a company this week, been through a couple interviews with them already, praying it works out and I can start working asap. I will take the advice in one of the previous posts by first finding out every dollar I have and then keep myself on a limit at the beginning of each week. I'm just afraid I've waited too long and the financial obligations I already have are too much for what I currently have. That's been one of the problems that got me in this situation and one I'm working on, I go with the flow too much, acting on impulses, instead of having a plan and sticking with it. The problem of procrastination and not acting until I feel the pressure is my downfall, hoping I can scrape by until a paycheck starts showing up. After hearing how much it could potentially be years from now, it does make me reconsider.