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Go with your gut, is all anyone can do. No one really knows what the future holds, but it doesn’t look good. How tenable is your situation, personally, as far as continuing to service your personal debt?
Is the peace of mind, of owning your vehicle outright and having no credit card debt, going to outweigh potential regret, if things turn out to be not quite so dire as they appear to be, from our present vantage point?
How far from retirement are you, and do you anticipate being able to recover sufficiently in that time, to fund retirement? Many people have resigned themselves to the idea of working until they die. Would you be able to deal with such a circumstance, if it comes to that?
Then, you have the high liklihood that taxation will not be at all favorable, for your IRA and 401k, when the time to draw arrives. There have been hints that such accounts may be seized as well.
It’s a problem many of us are having to wrestle with.
If you are of the mindset. The plan from the top these days seems to be inclined towards taking your 401k. I would personally bet on it.
Why not reallocate your investments into bond funds ?? Treasury inflation protected funds that pay a low intereest rate plus an inflation rider. At least you make some money ? Why not a small portion into a gold fund ?
David Dreman suggests it may be a good time to invest in a banking index fund. (Newsmax.com) Great fund manager by the way.
Last June I put everything I had in the “Stable Market Fund” in my 401K. I actually have made 1.9% over the year. However, I am out of work and in school. I may need the money soon. I am thinking of cashing out the whole amount. I can’t put anymore in. I don’t think anything’s going to make money over the next couple of years.
You can move money around INSIDE your IRA and 401K — i.e. you can change between mutual funds ( sometimes limited number, but there are always more than one), INCLUDING money market fund. So you don’t have to take it OUT of your IRA or 401K and have to pay the taxes and penalties. Call your IRA custodian and your 401K administrators and find out about all the options INSIDE those accounts.
All that said, it’s hard to say, NOBODY, but nobody knows whether at this point it still makes sense or not to take money out of the market. While things are looking grim, but you don’t know when the market turns up and if and when it does, it may jump up a lot — or not.
A major question is your age — you don’t need to post it here, but if you are say in your thirties, then this may be an opportunity to put more money into those funds, because one would expect that in 20-30 yeaars the market will be much higher. If you are older, but you don’t need that money really soon, you may still leave it alone, and as you put new money into it, again, in 10-20 years it will be worth more, unless Obama will take it all away — first the income from “the rich”, than the wealth, etc.
Teh main point is the first paragraph, that you can move money around inside your IRA or 401K, if you wish, but at this point, think carefully, you already lost about half of it.
Or in your IRA where the last time you put money into ten years ago, you lost your gains, but you are probably right back where you started, i.e. you didn’t actually lost the money you put in initially.
This is not advice, merely information and suggestion that you get more info from your IRA and 401K cutodians.
One more thing regarding your debt — as long as you can pay it and don’t have to default, I would say to not take out your IRA and 401K, because by doing that you lose a lot more, with the taxes, penalties and including not being able to recover the money you lost in the market. This loss is much more, than the interest you are paying on your loan, probably many years of interest you are paying.
Having a cushion, however shrunk, for emergencies is much more important, than having no debt, but no money for emergencies.
Good questions Washi. Look forward to reading some of the responses.
I was old enough to take a withdrawal and did just that
in November to pay off my debts. I sure feels good to
have done that, as I watch the balance go down everyday
with the market. I moved 90% of it to Bonds last Feb. and
that saved me from tremendous loss. I see more and more
talk about the govt just taking over 401Ks anyway, so at
least I got something worthwile out of mine while I could.
If there’s any left by the time I retire (few months) it’s
going to get rolled into IRA and then we’ll see.
Washi, you’re the first ever here to spell ‘advice’ correctly in the thread title. Congratulations!
Bad idea.
I wish the eternal optimists John Templeton and Uncle Lou (Rukeyser) were still around. I bet they’d both advise you to sit tight. I can say, don’t sell at the bottom (which is one reason why we have the bottom - the sellers outnumber the buyers.)
One of mutual fund studies I read a few years ago discovered,, not surprisingly, that one year’s bottom performers were among the top performers the following year (excluding such perennial losers as the Steadman Funds, of course.)
cut up the cards, sell the car.
I was told things would settle down in 9 months.That was 6 weeks ago.We are hanging in.
I would leave it alone. It has gone down so far now, you should wait. Just continue paying your loans and CC as much as you can afford.
And buy some ammo.
FWIW, Bill Gross at PIMCO has been talking about some once in a lifetime opportunities in the debt market, specifically, corporate bonds. Your 401k and IRA probably have several bond funds to choose from. Look at your investment options, and check your prospectus to see what the sales charges are, as you don’t want your returns to be eaten up by excessive fees. Go to the carrier’s website and look for a link. It shouldn’t be too hard to find.
It is important to make changes in your investments when changes are called for. Re-balancing your accounts should be a regular part of your review and maintenance of your accounts. It forces you to do what does not come naturally - buying low and selling high.
This stuff isn’t rocket science, but it does take some time to make informed choices. Consider your age/years till retirement, and remember what these accounts are for—retirement! Keep in mind that the decisions that you make right now will have a profound impact years down the road.
The biggest mistake most of us make in bad times is that we end to think it’s always going to be bad. We’re in a tough time, that’s for sure. It may even get much worse before it gets better. But, that’s the thing: history tells us that it has always gotten better.
In my view these are the pros and cons:
Pro: Debt free, cash available for old fashioned “investing”. Big pro: you know what the tax rate is today so you know what the hit will be.
Cons: 10% is poof....gone.
I am reminded that most investment firms who tell you to buy and hold are not themselves buyers and holders. They use our 401k money to move in and out of the market as often as they want. In an up market they may be making 20% off their trades using our cash but all we see is the percentage is “close” to the historical return for a particular fund. And in a down market, all we see is “down”.
I’m leaning toward the idea that the 401k is a suckers game because you cannot write off losses and you have to hope like hell taxes will be lower when you get to the point you can withdraw it without penalty. I don’t trust these clowns.
It may make sense to delay paying off long term debt (e.g. mortgage) with the expectation that inflation will mean you are paying back expensive dollars with cheaper ones. Definitely pay off all revolving debt.
Inflation will screw all our creditors and unfortunately it will whack us as well.
Or I could be completely wrong and everything will be great in 5-10 years!
Tough to answer without the missing salient fact: your age.
Look into an indexed annuity. At your age it would be appropriate to consider. The principal is tax deferred and you can take out as much as ten percent per annum without penalty. A 15 0r 20 year term sounds about right for you.