Hello from Iowa

[setab]

My first post here. I'm 59, thinking seriously about retiring from my job as a government attorney and looking for any words of wisdom that I can find on retirement. I'll start with a simple one. Is it wise, for example, to take 401K savings and pay off indebtedness, leaving only the house payment? Thanks.

Setab

 

[obryanjf]

I think the general rule is no. You will of course pay taxes on the withdrawl to pay off the debt so you need an additional roughly 30% more than the debt to withdrawl. If you are under 59.5 then you also pay a penaty, although you are close to eliminating that. Also likely when you retired from govt, the loan may become due, but i think that depends on plan specific rules.

 

[REWahoo]

Welcome to the forum.

If you've spent much time reading here, you've probably noticed the quality of answers to questions improves with the amount of information provided about individual circumstances. Although I agree with the previous poster in principle, it would help to know more specifics. For example, what is the amount of debt you are considering paying off using 401k withdrawals and what's the interest rate you're paying?

 

[SteveR]

As a general rule you would not want to use your 401k to pay off debt unless you were so in debt that you were forced to do so. 401k money is tax defered and to raid that stash would in, IMHO, be a really bad thing to do. Why pay the tax on that money now, which would be your current income tax marginal tax rate? Since you are over 55, your distribution would not incur a penalty of 10% as would an IRA (before age 59.5).

As REWAHOO said, it all depends but I would not do it unless there was a very very good reason to do so. Without more data it is not possible to give much additional advice. You need to balance you willingness to "share" confidential information with the world or not. The more detailed the better but not so much that your identity could be compromised.

 

[setab]

Now that I know that this thing works, I'll give some more information. I'll have a government pension in the 60s; the indebtedness is roughly $70,000 (Misspent or overspent youth!). Yes I would have to pay the teaxes, but not a penalty; and last, but not least, my wife would like to get rid of the debt, which I could do with some change. Interest rate on the debt is about 9 percent. I know the conventional wisdom is don't do it, but it is a balancing act between wisdom and my wife's piece of mind. I intend to work doing something else, but at a pace and place of my chosing. thanks.

Setab

 

[Brat]

Wife worry.. I think if the two of you put together a 'spending plan' that includes paying down debt she would be much happier. 

Were I you I would start networking to find that pace and place of your own choosing to do after you retire.  Once you have that nailed down, retire.  If you committ to using 80% the net income from the new job to pay down your debt it will be gone before you know it.

Leave as much as possible in 401Ks, IRAs and the like as they are protected and grow tax free. 

 

[wildcat]

Now that I know that this thing works, I'll give some more information.

Please deposit another 25 cents

 

[setab]

Wildcat,

I'm going to like you!

Setab

 

[Martha]

Lots of lawyers here Setab.  Almost as many as there are computer geeks and engineers. 

I take it that the pension is not the same as the 401(k)?  If the 401(k) is with your current employer and you resign in the year you turn 55, there is no 10% penalty, only the tax.  The application IRS publication is 575. http://www.irs.gov/publications/p575

To spread the tax hit over time, you might what to withdraw the money to pay off the debt over a few years.   Only you know your tax situation, but it is always nice to plan in a way that minimizes taxes.

 

[setab]

Martha,

Thanks. I knew those things, but it always helps to rethink them. Lots of lawyers here. What does that say about our work if so many of use are trying to get out early? The pension and the 401 are different.

Setab

 

[maddythebeagle]

Did you work for a company for awhile to get the 401k?  State and local government employees usually have 457k programs which do not have age restrictions on taking the money (just termination of service).

 

[Martha]

Lots of lawyers here.  What does that say about our work if so many of use are trying to get out early?  

What is it for you? I can't stand the controversies anymore. If I could plug away in happy land, I would be fine.

 

[setab]

Maddy,

You are correct; I was speaking generically. I technically have a Thrift Savings Plan (TSP). Tough crow; I'm going to have to be more precise.

Martha,

It's all of it, including the controversies. It's just time. I want to sing, I want to dance. In short, I want the rest of my life, whatever that is, to be mine. I want to have fun. Law, especially government law, is just not fun anymore.

Setab

 

[ladelfina]

What about taking a Legal-Aid-type job.. maybe part time? Then you could have some cash coming in, do good for someone, and pay down your debt, and have more free time to boot.

Don't know anything about the legal world, but just thought I would throw that out there... I bet there are a lot of non-profit groups that would love experienced legal advice.

 

[Martha]

What about taking a Legal-Aid-type job.. maybe part time? Then you could have some cash coming in, do good for someone, and pay down your debt, and have more free time to boot.

Don't know anything about the legal world, but just thought I would throw that out there... I bet there are a lot of non-profit groups that would love experienced legal advice.

If you want to be involved in messy controversies, work for legal aid. I worked for them while in law school. My original "plan" was to be a legal aid lawyer. I changed my mind. You really need to be devoted. The hours are long, the money stinks, and the clients can be difficult.

My experience with non-profit groups is that they try to get volunteer help from lawyers to the extent possible. I have spent a fair amount of time doing just that.

 

[Brat]

It is my personal opinion that you should keep as much as you can in your retirement savings account.  It is tough to replace the $ you withdraw with subsequent IRA deposits.

Housing in your state is cheaper than my area so down-sizing or home re-fi probably won't save much.  If you and your spouse could go on a spending diet and use the post-retirement job to pay down debt you could take care of this in a year or two.

Federal agencies also have Employee Assistance Programs that offer financial advise. IMHO you should explore their offerings, the price is right.  Your situation isn't despirate but their consultant could come up with options you haven't considered.

Have the both of you attended the OPM program for retirees?  Retirement is both an economic and relationship major event.

 

[yakers]

setab,

Since you mentioned TSP, that is another reason not to raid the retirement fund. You could put 30% to 60% of the TSP in the G fund and this asset allocation with your pension you would never need to buy a bond or bond fund. (You could still consider TIPS or ibonds but they are not normal bonds). Yes the debt is a higher rate than the returns on the TSP. There are few people as anti debt as I am. But you have the circumstances to pay down the debt from your cash flow so I do not see a reason to raid a fund which you would not be able to replenish.

I assume you are CSRS and not FERS, so things should be smooth on the pension and you have medical benifits. So AFAIK that would only leave the spending side to ride heard on but most Govt people I know are accoustomed to living on a budget.

 

[ladelfina]

Martha, you're right..

I'm just remembering various non-profit projects we did at our firm ('cause we were "nice guys" and we thought it would be "fun"). They were the worst clients ever, bar none. ALL of them. And not just because they would run us ragged even though they were paying a cut rate or even zero. They just had no direction and everything was by committee, but of course with everyone being volunteers even the committee was run by committee. Disaster squared.

We'd always say "never again" and then a couple years later would get sucked into something else. Maybe, like with childbirth, we had just forgotten the pain.

Sorry, setab!

 

[setab]

Yep, I am CSRS and I have had the OPM course, which I highly recommend! I guess the key is to remain patient. Thanks for the responses; they are very helpful. I personally like the idea of leaving the TSP alone and picking up some fun work to put towards debt retirement. Finally, "I don't know nuthin about birthin no babies," so the analogy is somewhat illusory, although not entirely lost,vtobme

Setab

 

[bow-tie]

Welcome setab, from a fellow Iowan.

 

[setab]

Thanks bow-tie. This time of year I always wonder why I'm not a former Iowan. At least it was above zero last night!

setab

 

[bow-tie]

Yeah, its been miserable cold... and it's only December. Just a short 6 weeks ago it was in the 60s. Go figure.

 

[Jay_Gatsby]

If you want to be involved in messy controversies, work for legal aid.  I worked for them while in law school.  My original "plan" was to be a legal aid lawyer.  I changed my mind.  You really need to be devoted.  The hours are long, the money stinks, and the clients can be difficult.

My experience with non-profit groups is that they try to get volunteer help from lawyers to the extent possible.  I have spent a fair amount of time doing just that.

I don't want to hijack Setab's thread, but my experience with Legal Aid and non-profits using volunteer lawyers is very little gratitude on the part of the "clients". They forget the old adage "you get what you pay for," and expect top-notch service and heavy time commitment at the expense of paying clients.

I wouldn't advise Setab to work for Legal Aid or a non-profit after retiring. Rather, he should consider hanging out his own shingle on a part-time basis in his area of expertise. He could bill 10 hours a week at $200 (spending another 10 hours a week marketing) and still make $50k+ a year after expenses. If he wants to do a little pro bono to assuage his conscience, he should do it on his own terms rather than those of Legal Aid.

 

[setab]

Jay,

I've thought about the old shingle routine, but I think I want to get some distance between me and the legal practice. I will if I have to, but all things considered I think I would rather work in a wine store.

setab