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Author: xraymd Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 310164  
Subject: Re: Me vs. My Parents $40K Debt (Long) Date: 9/6/2004 1:12 PM
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Greetings, IslandFoolin, what could go wrong with the pension is that if the loan repayments were not handled properly, the amounts become taxable income and diminish the overall magnitude of the later pension availability. This is as serious a danger as is defaulting on a 401(k) loan and is generally strongly advised against. It does not appear that he has any insurance against a disabling injury - what if he were suddenly unable to work and had to live on a reduced pension because he has already raided it?

No amount of promises by your father can be enough to persuade either you OR HIM that he would not default until he practices proper fiscal management! He could start this in place - just by ceasing to spend above what he makes and by reorganizing his present indebtedness by getting himself right-side-up on his loans to pay off late fees and overlimit fees and check every few months on whether his interest rates can be reduced and whether he can balance transfer to other, more favorable terms.

In other words, the same kinds of get-out-of-debt, one-foot-in-front-of-the-other painstaking process that takes root and becomes a fundamental way of improving one's net worth.

Breaking into the pension is not a good idea at this stage, until other measures that he can take RIGHT NOW, IN PLACE have been implemented and can be trusted. Your father needs to ask himself what he has been spending his money on, and he needs to follow a budget with a set-aside for irregular expenses and emergencies. First and foremost, he needs to foreswear further use of credit.

Unless and until that happens, step by step, he is taking a very real risk with his only future security (given no IRA or other savings). Rather than trying to dip into the pension, why not work on what it takes to spend and save day in and day out, week in and week out, month in and month out - and perhaps instead discuss starting a Roth? Most of us here consider retirement monies sacrosanct and would not consider accessing them to finance past money mismanagement. That needs to be fixed in the here-and-now, with better approaches to income allotment, and not by putting future security in peril.

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