Raiding Retirement - A Huge No-No

In my post on How to Pay For College, I referenced a CNN/Money article that encouraged parents to raid their retirement to pay their childrens’ tuition bills.  Becca left a comment on that post:

… Where I disagree is the comment in the article about “raiding the IRAs”. That should never ever be done. No one will give you a loan to retire. …

Since I have picked up quite a few new subscribers in the past couple months, it occurred to me not everyone is familiar with my opinion on raiding retirement.  I take a hardline attitude on this: DON’T DO IT!!!  Leave your retirement funds alone!

Don’t raid retirement to pay down debt (even as much as I love the idea of y’all getting out of debt!).  Definitely don’t raid retirement for your kids’ college.  And, by all that’s holy, don’t raid your retirement funds for something material!

When I say “raid retirement” I am not only talking about making withdrawals … I am also talking about those loans against your retirement funds as well.  After finals are finally over, I’ll do some research on those stupid ideas like 401(k) loans and the even dumber idea of a debit card for your 401(k)/403(b)/whatever account just to get the hard and nasty numbers.  Stay tuned for the ugly truth behind all the hype ;)

If you are still thinking about raiding your retirement funds by withdrawal or loan, you need look no further than the U.S. government for a shining (?) example of why this is a Bad Idea.  Back in the 1980s, Congress had the “brilliant” idea of raiding the Social Security trust fund to help cover the budget.  Twenty years later, quite a few (but not enough) government officials are now saying it has never been paid back and Social Security faces possible insolvency.  We have the largest demographic group starting to retire … and a bunch of unpaid IOUs in the account.  It’s the government’s equivalent of taking a loan against our retirement.

Unlike Congress, you cannot borrow however much you want whenever you want with the expectation that someone else will pick up the tab for you (although some people seem to act as if they can).  Let’s face it, if that strategy doesn’t work for Congress, it will be disasterous for YOU.

I can think of only two instances where I would raid my retirement funds, and that would be my option of absolute last resort: as a last-ditch effort to prevent a bankruptcy or as the last option to pay for life-saving emergency medical careI would go back into debt before tapping my retirement funds, and long-time readers will tell you that is saying a LOT.  Let me repeat that for effect:


I hope I have been quite clear on that point.  So, unless your “retirement plan” is to move in with your children and grandchildren and be a burden in your old age, STAY OUT OF YOUR RETIREMENT FUNDS!