THINKING OF CASHING OUT YOUR RETIREMENT TO PAY DOWN YOUR DEBT?
Are you struggling with debt and considering cashing in your retirement plan to pay it off or to catch up on a mortgage or car loan to avoid losing it. If so, you really need to consider and understand all of your options, including either a Chapter 7 or Chapter 13 Bankruptcy. If you are at this stage of financial distress, the long short term detriment of a bankruptcy is likely less consequential than the permanent loss of your retirement. At our firm, we offer a free phone consultation to begin to help you understand the best course of action for your financial situation, and a low cost detailed Zoom consultation ($200) to consider your options in depth. Here are some reasons why you should call us before cashing in your retirement plan:
It's important to remember that retirement plans are designed to provide you with financial security in your later years. Without any retirement you will be looking towards Social Security as your only means of support, other than working once you are of retirement age. Social Security typically only replaces about 40% of your working income, so if you are struggling to make ends meet now, think what it would be like having less than half of what you ear now! At the start of 2023 the average social security benefit was $1,827 a month, the maximum social security benefit for full retirement age in 2024 is $3,822. Thus, cashing in your retirement plan early to pay debt can have long-term consequences on your financial future. It's crucial to explore all of your options before making a decision that likely will have a significant impact on your retirement.
Cashing in your retirement plan early will usually result in significant financial penalties and tax implications. Depending on your age and the type of retirement plan you have, you may be subject to a 10% early withdrawal penalty, as well as income tax withheld on the amount you withdraw. Thus usually at least 25% loss of the retirement if you cash it in. This can result in a significant reduction in the amount you receive from your retirement plan and leave you with less money to live on in your retirement years. While you may reduce the interest you pay on some debt, the penalties and taxes on the cash in, plus lost gains on the investment, will likely exceed the reduction of the interest you pay on the credit cards.
If you fail to pay off all of your debt, you will likely find it difficult to rebuild your retirement, and may later find that you have to look at bankruptcy
later. In Wyoming, all retirement plans are exempt from creditors' claims, meaning that your retirement funds are protected even in the event of bankruptcy. This is true in most states and for most retirement plans. This means that you can eliminate your debt without sacrificing your future.
There are options to deal with debt in a bankruptcy. For many people a Chapter 7 bankruptcy can eliminate most debts, usually allow them to keep their home and cars which have debt on them, keep their retirement intact, and most if not all of their personal property. For people who can not or do not want to file a Chapter 7, a Chapter 13 can eliminate interest on most unsecured debts which make it easier to pay these debts or part of those debts. Finally, the impact of a bankruptcy is usually not as serious on your credit as you imagine.
At our firm, we can help you understand the potential consequences of cashing in your retirement plan and determine whether filing for bankruptcy is a better option for your financial future. Our experienced attorney can guide you through the bankruptcy process and help you eliminate your debt while protecting your retirement savings. Don't sacrifice your financial security – call us today for a free consultation and learn more about your options.