Has Anyone Cashed Out Their 401(k)?

[Livedog]

Something amusing to me about early retirement is that it is associated with early dementia. You have to be careful as there are all sorts of confounders there, but for those who plan to retire early, have a plan to stay engaged as well.

I work with people who work into their 70’s. And they keep working because it’s really all they have or know to do. They are millionaires already and don’t need the money. All that power, the influence and engagement…it goes off like a light switch when you retire.

Personally, I’m baffled by this. There are more things to do in this world than there is time. I can’t wait to retire and be free. But you certainly need purpose in life. I think people who have misplaced their identity in what they do for money struggle the most in giving it up.

My dad retired at 53 and never looked back. I admit I was concerned for him at the time. But he had more hobbies than hours in the day could accommodate! He’ll always be my hero for getting out “early.” He did succumb to dementia, but not til his 80’s. And let me tell you, dementia sucks.

Anyway, I’ve enjoyed reading through this. It’s a pretty good discussion.

 

[Livedog]

On the mortgage payoff vs 401K topic…that’s not an easy one in spite of the math. I’ve worked both. My goal initially was to retire without a mortgage. I listened to a Warren Buffet guy give a pretty convincing argument to keep the mortgage. I’ve recently changed course and maxed savings, keeping the mortgage for now. The math certainly plays in my case to keep, but I also like the idea of having my own cash reserves for the roof I know I’ll need in a few years, etc.

 

[KenLee]

The IRS makes it painful to withdraw/cash out a 401k for reasons other than retirement income from both a tax burden and penalty standpoint. The only instance I would ever consider this as an option would be if it fell under the IRS hardship distributions guidelines and I was looking at potential bankruptcy, truly a last resort option.

If I'm looking to scrape together funds, touching a traditional IRA or 401k account is going to be the last account on the list. This may be different for your situation if you're over 59 1/2.

One of my close hunting buddies cashed out his 401k after every job he left. His finances were a mess (camper loan, side-by-side loan, vehicle loans, home loan, paycheck-to-paycheck and frequently overdrawing his account) and is not an example I would want to follow for financial wellness.

He who dies owing the most money wins!

 

[Customweld]

He who dies owing the most money wins!

I've wondered about this. My old hunting partner is about as close to being feral as a human can be. By profession he is a faller for a small logging company. He is in his late 40's and doesn't have much of anything to his name. Drives a company truck, no debt but also no retirement, health insurance and his savings account is just big enough to get him through spring layoff every year. He comes and goes as he pleases, he works hard when he's working, but he may disappear for a week or 2 to go hike a canyon that piqued his interest.
I don't know how he plans on supporting himself later on in life and I don't think he cares. I've always thought he was crazy to not have any kind of a plan and he's always thought I've been crazy for squandering life at work.

 

[sasquatch]

I've wondered about this. My old hunting partner is about as close to being feral as a human can be. By profession he is a faller for a small logging company. He is in his late 40's and doesn't have much of anything to his name. Drives a company truck, no debt but also no retirement, health insurance and his savings account is just big enough to get him through spring layoff every year. He comes and goes as he pleases, he works hard when he's working, but he may disappear for a week or 2 to go hike a canyon that piqued his interest.
I don't know how he plans on supporting himself later on in life and I don't think he cares. I've always thought he was crazy to not have any kind of a plan and he's always thought I've been crazy for squandering life at work.

Later in life he will claim some sort of disability or social security and get 1-2k per month from us, the main tax payers


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[Duckhunterbrad]

Later in life he will claim some sort of disability or social security and get 1-2k per month from us, the main tax payers


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I wish that statement wasn't so true! I see it daily where people did nothing to help themselves preparing for retirement but now blame it on the government on why they are broke.

 

[sasquatch]

I wish that statement wasn't so true! I see it daily where people did nothing to help themselves preparing for retirement but now blame it on the government on why they are broke.

Amazing how so many were “conservatives or republicans” right up until they realize how they didn’t plan for their future. At which point, they turn into liberals who want a piece of everyone else’s.


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[PlentyOfDoes]

He who dies owing the most money wins!

Don't worry, the nursing homes and elder care facilities will make sure you spend it all.

 

[Titan_Bow]

I'm 51, I divorced 3 years ago and have since purchased a home by myself. I max 401k, employee stock purchase, and Roth IRA contributions. My mortgage is for about 65-70% of the current value of my home, with a 6.125% 30y rate. I am healthy, eat right, exercise everyday, I am seriously considering cashing out a portion of my 401k when I hit 59.5 and just paying off the mortgage, but keep working, even if its a more "chill" job or side hustle.

 

[dieselchessy]

I'm 51, I divorced 3 years ago and have since purchased a home by myself. I max 401k, employee stock purchase, and Roth IRA contributions. My mortgage is for about 65-70% of the current value of my home, with a 6.125% 30y rate. I am healthy, eat right, exercise everyday, I am seriously considering cashing out a portion of my 401k when I hit 59.5 and just paying off the mortgage, but keep working, even if its a more "chill" job or side hustle.

Why would you pull out your money to give it to the bank?
What if a big expense happens along?
Major medical expense? Who knows.
You could use that money to pay the bank a little at a time rather than all at once.

 

[CorbLand]

I've wondered about this. My old hunting partner is about as close to being feral as a human can be. By profession he is a faller for a small logging company. He is in his late 40's and doesn't have much of anything to his name. Drives a company truck, no debt but also no retirement, health insurance and his savings account is just big enough to get him through spring layoff every year. He comes and goes as he pleases, he works hard when he's working, but he may disappear for a week or 2 to go hike a canyon that piqued his interest.
I don't know how he plans on supporting himself later on in life and I don't think he cares. I've always thought he was crazy to not have any kind of a plan and he's always thought I've been crazy for squandering life at work.

There’s people that their plan is to rely on SS. Based on what you are describing, he is probably one of those and will make it work with what he gets from that.

There’s nothing wrong with claiming SS when the time comes. You worked your entire life paying into it. It’s rightfully yours to claim.

 

[pods8 (Rugged Stitching)]

I'm 51, I divorced 3 years ago and have since purchased a home by myself. I max 401k, employee stock purchase, and Roth IRA contributions. My mortgage is for about 65-70% of the current value of my home, with a 6.125% 30y rate. I am healthy, eat right, exercise everyday, I am seriously considering cashing out a portion of my 401k when I hit 59.5 and just paying off the mortgage, but keep working, even if its a more "chill" job or side hustle.

Lots of ways to skin the cat but some simple food for thought. Does your 401k deliver more than 6.125% earnings? (It should) Even if you wanted to make mortgage payments with the 401k if you simply withdrew the amount to cover your payments each month/year then the remainder would stay compounding growth. Your taxable income would be lower by spreading it out, depending on how much money we're talking you could be paying higher tax rates to do it in one shot. If single once you pass ~200k in adjusted income (401k withdrawls are income) you're into 32% federal tax bracket. Spreading that out each year (the money is still there compounding) will keep the taxable income lower each year. Lower mortgage rates could show up again and you can simply refi at which point it would be even worse of a decision to pay it off with 401k.

 

[pods8 (Rugged Stitching)]

There’s nothing wrong with claiming SS when the time comes. You worked your entire life paying into it. It’s rightfully yours to claim.

Nothing at all wrong with claiming it. Its folks that don't save for themselves who then bitch SS isn't enough that bring comments.

 

[RWH80]

I cashed one of mine out last year at age 45 to purchase a piece of property. It was the right move at the time.