With stocks and bonds declining, should I use retirement assets, such as a Simplified Employee Pension Plan (SEP) IRA, Roth, or annuity, to pay off credit card debt? My stocks are down 15% to 20%, and my annuity is the only investment in a positive direction. I just turned 59 1/2. My debt is $240,000.
-William
My first suggestion is to not make things more complicated for yourself than necessary. Specifically, I mean don’t worry about where the market is in relation to your investment portfolio. Although it is tempting, trying to coordinate your decisions with market behavior is ultimately a fool’s errand because you cannot predict the markets.
With this worry crossed off our list, The basic question becomes pretty clear: Should you pay off debt with your money? Individual Retirement Account (IRA) Or other retirement savings? (If you have additional questions about saving for retirement, This tool can help match you with potential advisors.)
Should you pay off debt with retirement savings?
In most cases, My answer would be “no”.“.But if you encounter large amounts of… High interest debtsThis may be an exception. maybe. I can’t give you a yes or no answer to your specific circumstances without more information, but I can at least give you an example of how to approach the problem. (If you have additional questions about paying off debt, This tool can help match you with potential advisors.)
Let’s imagine an investor, like you, who just turned 59 1/2 years old and is wondering what to do with a big chunk of high-interest debt. For simplicity, assume he has $50,000 worth of credit card debt and:
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Makes $100,000 of taxable income.
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He has an IRA balance of $1 million.
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Pay 19% interest on the credit card.
With these factors in mind, we want to determine which of the following options for repaying $50,000 will be the least expensive in the long run:
And with Which In consideration, I made a projection on the IRA balance with and without a $50,000 withdrawal.
Consider speaking with A Financial advisor To run your numbers.
Run the numbers
If our hypothetical investor made this withdrawal now, and then lived to age 90, he would do so He ultimately ended up with about $130,000 less than he would have otherwise.
Is this deficiency significant enough to say? IRA withdrawal Not worth it? Well, to some extent, this is subjective. Since the hypothetical investor starts with a $1 million portfolio, he might not mind having $130,000 in less than 30 years.
On the other hand, the $130,000 is nearly three times the original debt amount. Returning to your real-life situation, the impact may be more pronounced when trying to pay off a $240,000 debt balance, depending on how much savings you have to work with.
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