My husband is at it again; writing blog articles for me that is. Here are his thoughts on retirement planning and bankrutpcy:
It surprises me that many people are not as concerned as retirement as I am. I guess my “normal” is just not quite aligned with other people’s “normal”. I recently heard of a friend of a friend, who took out a fairly large sum of money out of their 401k to by a new sports car that they just had to have. I’m a car fanatic myself, but I’d never bring myself to do such a thing. Later, I heard they took more money out for a motor home, all in keeping up with their neighbors.
The problem they will face is the ability to keep up with their neighbors when they attempt to retire later. They would either continue working until their death or retire with such meager funds that would make working at a job more fun than retirement. Besides the 15% penalty on the sum withdrawn from the 401k, it’s just doesn’t make good family financial sense. Who is ready to withdraw $100k, and give away $15k, only netting less than $85k of your own money (take out another $22k in income taxes)?
I’ve heard a few similar stories from other people, and it amazes me that this sort of financial failure happens. It makes me wonder if the people are not well informed, or they just don’t have the fore thought to see the possibilities of their future.
I think that life happens when we’re trying to plan for retirement. That big fat nest egg begins to look pretty tempting when the balance grows. I never advise clients to tap a retirement account to get out of debt because that money is 100% protected from creditors taking it. So, if you’re tempted to tap your retirement account to get out of debt, consider bankruptcy as an option.