Q. Is it bad to withdraw your retirement funds to pay off debt?

A. It's usually better to keep the retirement savings and pay the debt off your salary. You will have to pay a lot in penalties if you withdraw the retirement money before it's time. Plus, the tax on investment gains.

There are two situations, when doing what you suggest can make sense.

1. Your debt burden is so large that you have to pay a lot every month to service your debt. You should calculate your Debt Ratio, and if it's above 50%, you can reduce your debt until the Debt Ratio is less than 30%. Having Debt Ratio above 50% indicates a very unstable financial situation. To avoid that danger, you can pay with your retirement savings, and get your finances back into stability.

 

 

 

2. When your retirement portfolio lost a lot of its value. Pretty much what has happened to most portfolios over the last year. You'll pay minimum penalty and taxes on your shrunk portfolio, and if paying your debt will save more than the penalties+tax losses from retirement savings, you can do it.

To get fast answers to your questions try our FREE FINANCIAL ANALYZER.

 

It doesn't ask any personal ID information (no name, no social, no address or phone). You'll be amazed how much insight you get into your own finances.

Good luck!

Moni.

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