Should You Use Retirement Savings to Pay Off Debt?

Most Advisors would adamantly say no!! But there are situations in which a liquidation makes sense. First, let me say that I don’t advocate it, but I do understand that things can get tight. That said … if survival is on the table, then you must consider ALL of your options… including retirement savings. I don’t think anyone would fault you for dipping into your retirement savings to keep a roof over your head.

So, under what circumstances should we seriously consider withdrawal?

  1. When debt payments are so high that they threaten your ability to pay necessary expenses such as food and utilities
  2. When debt payments are so high that you’re losing sleep; stress causes lost productivity and wears down our health, and we need both if we even hope to make it to retirement age
  3. When we’ve exhausted all other assets in a financial crisis
  4. When we’re flirting with disaster by having substantial debt and no liquid savings
  5. When we’re paying substantially more in interest on debt than we’re earning on our retirement assets.

A word of caution and ADVICE!!!

ALWAYS consider other options before going the retirement liquidation route. Get a second job, cut expenses to the bone, liquidate non-retirement assets, sell personal possessions, and even consider selling your house or a second car. Drastic situations require drastic measures.

But if you’re already doing some or all of those things, You do whatever you need to do!

My recommendation is to draft a plan prior to “winging” it. Experience has taught me that people tend to repeat the cycle if no plan is in place to follow. The one thing that you do not want is to deplete your savings just to end up right back in debt one year later. Remember, your goal is to eliminate debt, not repeat it!! Also, you need to be aware of tax liabilities and/or penalties associated with your decision. You don’t want a surprise later down the road that could create more debt. That would not be pretty!!

Talk to a Planner – NOT AN INVESTMENT ADVISOR!!! Remember, you are not investing in stocks and bonds at this point. You are investing in you!!! You don’t need someone taking your money. You need someone to help you keep what you have.