The idea of tapping your retirement account to pay for your mortgage might sound silly to some, but it’s a trend that’s growing as people realize that their mortgage might not be as pleasant as it was when they first got the home. Times have changed — people are realizing that now it’s time to make some seriously tough decisions, and that means figuring out which bill to pay. In that light, the retirement nest egg looks very appealing indeed.
Yet you should definitely think twice before you crack that nest egg. For starters, if you’re going to enter retirement, you need to be sure that you have enough to take care of everything that comes with not having an active income. This means that in most cases, using any retirement funds for anything other than you retirement life really isn‘t a wise idea.
Now, this assumes that you have a mortgage that has a good interest rate. If you don’t, you might want to think about refinancing first before you tap your retirement account. Retirement account money is something that’s harder to replace — debt is easier to get, and you can still come out ahead from a mortgage refinance without wrecking your retirement plans.
If you know that you are going to have multiple sources of income, then it’s okay to think about tapping your accounts. But you are going to need to look at the whole picture. Taking money from a protected account means that it’s not protected anymore. This means that Uncle Sam is going to want his piece of the pie, and that’s going to mean getting pushed up to a higher tax bracket. If you’re trying to withdraw 50,000$ out of your retirement fund, that means that your income just grew by 50,000$ in the eyes of the IRS. You have to keep that in mind when you’re filing your tax returns, because the IRS will definitely know — the company behind your retirement fund will send them the details. These transactions are monitored very carefully.
If you’re trying to move from one job to another, a rollover is a smarter move than trying to go and get things done with your retirement money. That money has to last as long as you do — and who knows how long you will live? So you want to always make sure that your nest egg is going to be protected above everything else.
We understand that it’s tempting to spend that money — even in light of knowing that the IRS is going to take a big cut and also penalize you because you didn’t meet the age requirement.
Some people feel that getting rid of a mortgage is much more important than having extra money in retirement. You need to definitely come up with a budget before you do anything else. You actually need two — you will want to have one for the life that you have now, and you want to have an expected budget in retirement. This should cover the extra costs that you might incur, like health insurance. Medicare supplemental insurance can be expensive as well. If you need long term care in the future and you’re paying those premiums in advance, you can find your budget is squeezed a lot tighter than you might expect.
Keeping track of your savings and expenses is just part of the retirement phase of life. Everyone’s situation is different and we can’t tell you for certain what you should do. We do advise speaking with a local qualified professional so you know where to go next with your financial blueprint. After all, there’s definitely nothing wrong with getting some extra help when you’re not sure which direction is going to be the right one for you! Good luck out there and take care of yourselves and your families — you have the power to make things happen!