UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next
Author: CMcDaniel Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308687  
Subject: Re: Advice needed for bad debt. Date: 11/3/1999 1:59 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Jenny,

I agree with the others that advised against using your retirement fund for things other than retirement. There's an exercise that you might want to go through before you decide.

Figure out what you will need to put aside each month to make up for the diversion of the funds. Here's an example:

You have $5,000 in the fund. Invested at 10%/year compounding annually, that grows to $54,173 in 25 years. Now, to end up with the same $54K in 25 years, you could also put $41 per month into a tax-deferred retirement account. If you wait 5 years before you start putting the extra $ away, the number jumps to $72 per month. Wait 5 more after that, it jumps to $131.

You can look at this and say, "Well, I can save more by paying the debt down because the rate is higher.". That works except there are a couple of things to be aware of. (1) If you don't have the discipline to actually make those monthly contributions to savings, you never catch up. (2) The money you contribute to catch up with limits your ability to put other money away (into tax-deferred accounts) because you run into the $2000/4000 annual contribution limit.

When you figure out all of the long-term ramifications of cashing out the retirement account (tax hit, cost to recover, impact on future savings), what you might find is that, although tempting, it may be a better long term deal to just work through your current situation without using the retirement money.

Good Luck.

CM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next

Announcements

TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement