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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Credit card debt Date:  9/23/2012  7:25 PM
Author:  aj485 Number:  305993 of 312189

I just wanted to know if it made sense to take less than 10% of my Ira to pay it off.I will be 59 and 1/2 soon.

If you can wait until you are 59 1/2 to make the IRA withdrawal AND you have sufficient other retirement assets/income, it might be okay.

However, the 'sufficient other retirement assets/income' is the key. If you subscribe to the theory that you need to replace 100% of your current income in retirement (and since you and your spouse have been livng above your means, as evidenced by the credit card debt, I would suggest that for you, 100% replacement is probably a bare minimum), will your current assets and any pension or Social Security you will get provide that?

For instance, if your joint annual income is X, what percent of X will you get from pensions and/or SS? Let's say it's 40%, so the remaining 60% of X needs to come from your retirement assets. A general rule of thumb for a 30 year retirement is that with a 60/40 stock/bond mix you can safely withdraw 4% of your assets the first year, and adjust your withdrawal for inflation after that. A 4% withdrawal means that you should have 25 times the amount that you want for income. So 25 x 60% x X, or 15 times your joint annual income, is what your retirement assests should be AFTER you make the withdrawal to pay off the credit card debt. So, if you can expect 40% of your current joint income will be coming from SS and pensions, will your retirement assets be at least 15 times your joint annual income after you make the withdrawal to pay off the credit card debt? You can substitute your own numbers into this analysis, but if the answer is no, you should not withdraw from your IRA to pay off the credit card debt.

In any case, if you decide to withdraw from your IRA (whether or not it's an idea that passe the analysis above), please do not withdraw from the IRA before you/your spouse have resolved your spending issues and are living within your means. If you do make a withdrawal to pay off the debt prior to resolving the spending issues, you risk running up the debt again, and having fewer IRA assets to pay it off with.

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