Retirement/house payoff question

[uglypug]

Hi, I recently lost my job after 18 years. I have a public retirement account worth about $110,000 that I can pull out early if necessary. I am seriously considering this (I'm 50) to pay off my house and two small credit cards. My car is paid for, my wife's is not. She is a nurse, employed currently. My question is - would this be advisable?

I cannot find a job to save my life (been off about 8 months) and to own my car and house with no debt would be a dream come true. However, the future would be up in the air, as I would make next to nothing in Soc. Security when I retire unless I find a great job soon.

I know I have about 20 years to work yet (or more) but I was wondering what people smarter than me think about this strategy.

Thank you!

[jpg7n16]

Hi, I recently lost my job after 18 years. I have a public retirement account worth about $110,000 that I can pull out early if necessary. I am seriously considering this (I'm 50) to pay off my house and two small credit cards. My car is paid for, my wife's is not. She is a nurse, employed currently. My question is - would this be advisable?

No. You would owe $11,000 in penalty taxes alone + federal taxes (likely 28% bracket since your income just increased by $110k) + state taxes.

After all that is said and done, you're left with maybe $65k and no retirement, and no cash since you just paid it all towards debts that you could have paid on for years with the $110k, and you would only have 20 years to rebuild it all.

I cannot find a job to save my life (been off about 8 months) and to own my car and house with no debt would be a dream come true. However, the future would be up in the air, as I would make next to nothing in Soc. Security when I retire unless I find a great job soon.

I know I have about 20 years to work yet (or more) but I was wondering what people smarter than me think about this strategy.

Thank you!

Have you considered just taking $1-2k/month until you find new employment? That would pay for the CC bills, mortgage and maybe even some food.

But it wouldn't drastically increase your income (and therefore tax bracket), would save you from penalties on the unused portion, would spread the tax liability out over multiple years, would leave you with a retirement fund when you start your new job, would leave you with expendable cash in case you needed gas or something, and would save you years of rebuilding. Plus, if you need to move for a job, there's less of a tie to the house with the mortgage (as opposed to the house you just cashed out your retirement to pay off).


I've said this in other posts in one way or another - paying off your mortgage is great when things are going great, but very problematic when your income stream is non-existent.


My point is, don't take a gigantic withdrawal - take as little as possible, and make it last as long as possible. And keep looking for work in the meantime.

[Slug]

As usual, I'm aligned with JPG here. It would be even better if you could just find some extra expenses to cut for the time being to pay the cards off and get you back on solid footing.

[LivingAlmostLarge]

If your wife is working does that not cover the bills? What is the income debt situation for the couple? Why withdraw money if she makes enough?

[bjl584]

Hi, I recently lost my job after 18 years. I have a public retirement account worth about $110,000 that I can pull out early if necessary. I am seriously considering this (I'm 50) to pay off my house and two small credit cards. My car is paid for, my wife's is not. She is a nurse, employed currently. My question is - would this be advisable?

I cannot find a job to save my life (been off about 8 months) and to own my car and house with no debt would be a dream come true. However, the future would be up in the air, as I would make next to nothing in Soc. Security when I retire unless I find a great job soon.

I know I have about 20 years to work yet (or more) but I was wondering what people smarter than me think about this strategy.

Thank you!

Paying off debt is great and should be your ultimate goal, but when you pay off debt without an income or without adequate assets, then you run the risk of running up more debt. As others have said, looking for ways to trim expenses at this time would probably be your best strategy. As JPG already said, the penalties that you will incur by pulling money out of your retirement account will far outweigh any benefits of paying off your debt.

About the job. have you looked into jobs outside your field? It's the holidays, and the retail industry is hiring everywhere. It's not great or glamorous, but it's money.

[Petunia 100]

What do you mean by "public retirement account"? Is this a vested pension in a public retirement system? If so, that makes cashing it in an even worse idea! Never, never, NEVER cash in your pension.

How about taking a close look at your budget? If you post it here, I am sure you will get lots of feedback.

[Hector]

Don’t take money out from your retirement to pay your debts.
Is 110k is your total retirement? How much is your monthly expense?
Start cutting off your expense.
How much your cars are worth? If it is significant amount, sell them and get a couple of cheap used cars.