Tapping your retirement funds early

Filling a gap

Since I’ve been taking some extended time off of employment, I’ve had a need to supplement our income with early withdraws from my retirement money. I know it’s not the best plan and it’s never a good idea for young people, but when you need the money…you need the money. Plus, I’m doing this in a measured way and with an eye toward conservative investing. (see my points on this below) In general, I keep a 6 month time horizon in mind. I know what our income is roughly going to be for that period, and I have a pretty good handle on what our expenses will also be, without budgeting every little penny. Here’s a previous post I did on my 6 month horizon and how I’m financing it. When I shifted some balances around, and figured I might be caught short…here was what I went through, before deciding to take the hit and pull a little money out.

Can I earn more?

Since I haven’t had a paid job in about 3 years, and I’m recovering from hip surgery, that prospect got eliminated pretty quickly. I never rule this out as a possibility. I’ve always been willing to “do what it takes” to support my family and will continue to do that until I’m dead. However, this need was more immediate and I realistically couldn’t find gainful employment in less than a week. OUT.

Can I sell something?

Ebay is always my quick way to generate some cash, but it takes time, and you need something of value. I’ve been having some of my collectibles certified to make them a bit more liquid in the future, should I have a need, but really, I like my stuff and intend to pass some of them on in the future. I recently gifted a $1,000 card to a friend before I went under the knife. I could seek out some kind of arbitrage “flipping” but that would only get me nickles and dimes and require a significant time investment. OUT.

Just tap it

It sounds so foreign to people who are geared toward saving and building a long term nest egg, but sometimes it really is necessary. In 6 months, I was planning on drawing down about $5K of my money, to supplement some recent medical bills and other expenses. My thought was that, financing my day to day now, will provide me an opportunity to recover fully from my hip surgery, and then I can better explore employment options at the end of the year. As I mentioned above, I’ve been shifting a good portion of my investments to be on the conservative side. (i.e. not heavily weighted in stocks). I can’t stress enough, how important this is. You can’t have your cake and eat it too. You can’t risk assets, thinking you might tap them, while increasing your debt and spending.

What you need to keep in mind

Some people go crazy with this kind of withdraw. Pulling out large sums or making BIG purchases, like a house or travel exceeding $10K, etc. I’ve seen this happen many times to family members and friends. Then they usually lose everything. I’m not saying I’m immune to losing everything, but I’ve fully reconciled the expense in my head and determined that this will cause the least stress in my life. In fact, I recently received a helpful email from Fidelity about creating buckets for various cash needs. For me, it’s about coming to the realization and acceptance that it’s OK to use the money you’ve earned and saved. Sometimes it just takes a little well thought out reflection to realize…”That’s what it’s there for.”

The emotional roller coaster of deciding to withdraw from your retirement accounts

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