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Should You Use Retirement Savings to Pay Off Debt?

By Kevin M

Despite the near sacrosanct status of tax sheltered retirement accounts, there are situations in which liquidation makes abundant sense. From the outset, let me say that I don’t advocate raiding retirement accounts except under extreme circumstances.

When to consider tapping retirement savings

My personal opinion is that if survival is at stake tapping retirement savings MUST be on the table. Under certain circumstances it becomes beyond absurd to allow your financial situation to collapse while protecting retirement savings. Retirement savings are, after all, a financial tool and not some sort of gold-plated legacy to be shielded at all costs.

Under what circumstances should we seriously consider withdrawal?


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Build Savings or Payoff Debt – Which Comes First?

Newsflash: You can’t get out of debt until you stop being broke!

By Kevin M

Some argue that if you’re in debt the priority needs to be to payoff your debts before attempting to build a savings account. Many call for the establishment of a small emergency fund—typically $1000—to handle contingencies, and then to pour all extra funds into the pay down and eventual payoff of debt. Only when your debts are paid will you have the cash flow to truly build substantial savings.

While there is some merit to that advice, I believe it fails to address the basic reason a person might get into debt in the first place: a lack of savings, forcing the use of credit as a savings substitute.

Until that cycle is broken, it’s doubtful you’ll ever payoff your debts or accumulate substantial savings. Life has a way of throwing contingency after contingency at us and unless we’re fully prepared to deal with that reality, getting out of debt is little more than a fantasy.


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Good Retirement Planning Should Include a Low Cost/Debt Free Lifestyle

Low Cost/Debt Free lifestyle as part of retirement planning

Kevin M

Most articles on the subject of retirement planning focus completely on growing tax sheltered retirement savings plans like 401k’s and IRA’s. It’s an effort to build a large capital base as a way of creating a strong retirement income to enable us to maintain the lifestyle we’ve become accustomed to during the course of our lives.

Few pundits ever deal with the flip side of that effort—establishing a low cost/debt free lifestyle early in life. For a generation addicted to McMansions, late model cars, eating out, vacations at five star resorts and the like, no amount of money salted away may ever be enough.


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