Is it wise to take money out of my retirement accounts to pay off my $46,000 in debt? We help one reader figure out her retirement strategy:
I’ll be 65 in a couple months. I retired at 63 and am currently receiving survivor Social Security payments . I plan on switching over to my Social Security at 70. I receive about $31,000 yearly in Social Security. I also take $600 each month out of my retirement account.
Start by compiling a list of all of your debts, the exact balances, the interest rates they’re charging and if there are any other stipulations . Once you have that, you can see where the brunt of your debt is, and make a repayment plan. If you’re only taking $600 out of your retirement account each month, that’s a withdrawal rate of a little more than 2% – not bad. A longstanding guideline was the 4% rule. With this rule, retirees could supposedly withdraw 4% of their retirement savings every year to pay for living expenses without running out of money before they died. That rule has been highly contested in recent years, with some experts saying that rate is too high.
There are a few strategies to pay off debt. One type is the “snowball” method, where consumers pay off the debt in the order of the balances, beginning with the smaller balances. As each balance is squared away, the money used for that debt is applied to the next highest balance. Credit cards typically have the highest interest rates, and home equity loans are generally low, but you will know where everything falls when you’ve made a list of your debts.
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