Mistake #2: Cashing Out Retirement Accounts

For most, bankruptcy is a last resort. It can be helpful for folks who have tried just about everything else to get the bills paid, but are still falling further behind.

One honest way to try to make through is to cash out retirement savings. There are a couple reasons using these accounts is probably not a good idea.

First, this strategy is kind of liking robbing Peter to pay Paul. Planning for, and saving for, retirement is a necessity. It is unrealistic to think you will be able (or willing) to work until the day before your death. Having a sound financial plan requires planning ahead for when you will not be able to work anymore.

Second, almost all retirement accounts are protected with bankruptcy exemptions. If you end up filing for bankruptcy now or later, part of what the court allows you to keep is your retirement money. By using the money to pay other bills, you use a protected asset to pay for debts which otherwise could be cleared away with a bankruptcy filing.

Lastly, cashing out these accounts is expensive. After paying early withdrawal fees and taxes, the money you end up with is only a fraction of what it’s worth when left alone.

The bottom line is there are better strategies available. To learn about options for your specific situation, do not hesitate to contact me for a free consultation.