Most people will agree that you cannot afford to neglect retirement savings. If your age is more than 50 years and you do not have sufficient retirement savings, you have reasons to feel anxious. Nonetheless, liquidation of retirement accounts can be the sensible thing to do during financially challenging times.
When should you consider borrowing from your retirement accounts?
Liquidating your retirement accounts can be a very tough decision, but when you are finding it difficult to survive, there is no point in trying to protect them. The following are some situations in which withdrawal of retirement savings can be a wise decision:
- You are losing sleep due to huge burden of debt, and you are considering debt consolidation programs. Debt payments are taking a toll on your health and work efficiency.
- You are having troubles to pay for even basic necessities like food and utilities, thanks to your debt payments.
- You have lost vital assets like your home or your car due to debt issues.
- You have mammoth debt, but your savings are nil.
- The interests on your debts are more than your earnings from the retirement account.
- Retirement savings might be sacrificed to avoid bankruptcy or foreclosure. Both of them are traumatic experiences and have too many negative effects.
Also, it can pay off to borrow from 401(K) to refinance your primary residence. With refinancing, you will have the advantage of lower interest rates.
Even if you are facing one of the above mentioned situations, you should still try out other alternatives like part time jobs, selling possessions, bringing down your standard of living etc. If nothing works, you must resort to retirement accounts.
Why should you think twice before cashing out your retirement accounts?
- Most retirement accounts are tax deferred. This means that your money will grow without any tax consequences.
- Your employer also contributes to retirement accounts like 401(k). So neglecting 401(k) would mean that you are throwing away free money.
- Retirement accounts guarantee a safe life after you are done with your professional career. So tampering with them involves substantial risks.
In certain situations, you might be left with no other choice than to liquidate your retirement accounts. But make sure that you do not wipe out your retirement savings for paying off manageable debts.