Author Topic: Should I cash out my 401k?  (Read 44928 times)

Lars

  • Stubble
  • **
  • Posts: 105
Re: Should I cash out my 401k?
« Reply #50 on: September 17, 2012, 12:15:39 PM »
Late comer to the thread here.

SJ,

You proposed early withdrawal of 401k at a cost of 2.1K in early withdrawal penalties. The forum counter proposed making cuts of $500/month in monthly budget and applying in to debt in addition to current payments at a cost of $1k in interest (determined via online debt snowball calculator - would take 18 months). Where are you at? Have you accepted the forum counter-proposal?


SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #51 on: September 17, 2012, 12:20:35 PM »
Thanks everyone for your thoughtful and helpful replies.  Still not sure what we're going to do, we're both mulling it all over now.  Admittedly, part of us really just needs the peace of mind that will come with having that stuff paid off, and having more breathing room every month, and that alone is worth the 10% penalty it'll cost us...getting laid off and then 6 months later taking a huge paycut will do wonders to your confidence I guess.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 36
  • Location: Oregon
Re: Should I cash out my 401k?
« Reply #52 on: September 17, 2012, 12:24:22 PM »
Alternatively, can you borrow from your 401k instead? If you take a $8400 loan, you could trade the $255 vehicle loan payment and $225 property visa for an approx. $160 401k loan payment (guessing 5% over 60 months). You will still lose the market gains, but you won't pay the 10% penalty. That frees up $320, plus you may be able to reduce your insurance or raise your deductible since the vehicle won't be financed anymore. Just one more option to consider...

As a side note, have you read any Dave Ramsey books? He is controversial here, but I think you might find him helpful. DH and I went through his class and found it well worth the cost. But you could probably find his books at your library for free.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #53 on: September 17, 2012, 12:25:44 PM »
Alternatively, can you borrow from your 401k instead? If you take a $8400 loan, you could trade the $255 vehicle loan payment and $225 property visa for an approx. $160 401k loan payment (guessing 5% over 60 months). You will still lose the market gains, but you won't pay the 10% penalty. That frees up $320, plus you may be able to reduce your insurance or raise your deductible since the vehicle won't be financed anymore. Just one more option to consider...

As a side note, have you read any Dave Ramsey books? He is controversial here, but I think you might find him helpful. DH and I went through his class and found it well worth the cost. But you could probably find his books at your library for free.

I would have done that long ago, but since I'm no longer employed with that company, they don't allow loans.  Lame.

Thanks for the tip, I've heard of him, might have read some stuff in the past, but I can't recall.  I'll check it out.

James

  • Handlebar Stache
  • *****
  • Posts: 1680
  • Age: 47
  • Location: Rice Lake, WI
Re: Should I cash out my 401k?
« Reply #54 on: September 17, 2012, 12:49:12 PM »
What vehicle do you have?  How much do you owe, and how much equity do you have?

Have you checked for options with auto insurance?  That seems super high, maybe because you vehicle is worth too much for your situation?  If not maybe you are probably paying too much for insurance?

Cell phones should be dropped to pre-paid or something well under what you are paying.  You can't afford the regular plan like that.

Internet, internet radio, internet backup and Netflix?  This needs to be cut back big time.  Are you on satellite internet?  The radio should go, the Netflix should drop down to $8 if anything.  What is the backup?  If it is for your client then they should be paying those things?

Groceries and eating out should be cut back, I don't see any reason you couldn't get that down to $450 total saving $288.


I just can't see any reason to keep spending at your level given your income and debt.

Sylly

  • Bristles
  • ***
  • Posts: 267
Re: Should I cash out my 401k?
« Reply #55 on: September 17, 2012, 12:59:27 PM »
My question is more this:  If I cash it out I lose $2k right now and get the high interest debt paid.  If I don't and pay off the high interest debt over 3 years, I lose maybe $2,500 to interest...so, which one seems more mustachian if the point is to save money?

So I was curious to see how much interest you'd be paying if you go the the recommended way (i.e. cut expenses, continue and increase monthly debt payments).

Someone correct me if I'm calculating this wrong. My method is to figure out what the beginning balance is each month, calculate the monthly interest, subtract payment, use end balance as next month's starting balance, repeat until zero.

The three debts you want to pay off with the 401k are: CC1 @ 9.9%, CC2 @ 19%, and car loan @ 7%.

I assume above quoted rates are APYs. Monthly interest is calculated as (1+ APY)^(1/12) - 1. I round off monthly interest to higher tenth (100th for car) of percentage point to be conservative.

Let's look at the car. Looking at the funny number, I'll assume the car payment is the minimum. Keeping at that rate, you'll pay it off on the 10 month, for a total interest of $74.

CC1, 6000 @ 9.9%. Currently paid at $225/month.

CC2, 4800 @ 19.9%. Currently paid at $50/month. I assume that's because it's not accumulating interest until November.

Suppose you stay with your current debt payment, just juggling the amount to pay the CC2 first, and keeping at minimum with the others. You don't say what the minimum for CC1 is, but let's just say it's $50. So starting November, I switched up the payments for CC1 (to $50) and CC2 ($225).

On the 11th month, you have the amount you had been using for your car payment to add, raising payment to CC2 to $480/month. At this rate, you'll pay it off on month 18, for a total of $752 in interest.

Now you have this extra $480 to throw into CC1, which you'll then be able to finish at month 32 for a total of $1126 interest.
Overall, you'll be debt free in 32 month, having paid a little less than $2k in interest.

That's without cutting expenses.
Throwing in an extra $50/month changes it to 27 months, ~$1750.
Throw in another $50/month, and you'll cut 150 in interest.

Say you cut $200/month, and you'll be debt free in 23 months, and spent only a little over $1300 in interest.
Let's go crazy and cut $500/month. The numbers change to 17 months and $900+.

There's some assumptions I've made in there, and I probably don't get my calculations accurate to the dollar, but I'm sure it's not too far off. Do you see now why everyone here is insisting you'd be making a bad decision to pull out that 401k instead of cutting your expenses?

JohnGalt

  • Bristles
  • ***
  • Posts: 482
  • Age: 34
  • Location: TX
Re: Should I cash out my 401k?
« Reply #56 on: September 17, 2012, 01:36:44 PM »

What are your long term goals?

Well...hmm...depends on what you mean by long term.  Long-ish term we want to be completely out of debt, including our mortgage (though we're not sure how long we'll stay in this house, we figure 5-7 years and then if the livestock business is doing well we'll need more acreage).

So, say you clear out the 401k and the net from that knocks out your non-mortgage debts.  What's your plan for paying off the $250k mortgage in 5-7 years?  I haven't done the math - but I don't think your cash flow, even without the debt payments will get you there and you don't seem open to making any changes in your budget. 

Do you expect the livestock business to pick up enough that it will take care of it?  Will this then become a full time job for you?  Will it net enough to replace both your current income and the increases you'll need to pay for the mortgage (which sounds like could potentially go even higher if you buy more land)?

Let's assume that between working and the business that it does pay off all debt in 5-7 years.  What next?

Will you do any investing?  If not, do you plan on just working the livestock business forever?  What happens if it fails down the line?

Did you know that stock investing is not the only way to use the old 401k?  You can roll it into a self directed IRA and then invest in land, physical gold, or whatever else would make you more comfortable than the stock market.  You could also roll it first into an IRA and then into a self directed roth IRA since you're in a low tax bracket.  Then, in 5 years, the money will be vested in the roth ira and can be withdrawn tax and penalty free at any time or left in whatever investment makes you comfortable. 
-Based on your responses, I think this is the best option for you because...

1. Short term - it forces you to get used to having those debt payment in your budget for an extended period so that, when they are paid off, it is easy for you to just roll with saving that money.
2. No 10% penalty, but you will have access to the money in 5 years should you need it.
3. It keeps you investing in something besides just the livestock business
4. It locks in your currently low taxes on that money

Do this with accessing the money now (with the 10% penalty) if you are in dire risk of losing the house as the back up option

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #57 on: September 18, 2012, 05:31:35 AM »
Thanks Sylly (and Use it up, wear it out...) for doing some serious maths!  One thing on yours Sylly is that the payment I listed for both CC's is the current minimum, so they can't be swapped around.  But it does illustrate a good idea of what I might pay in interest were I actually able to dump that much into them every month.  That might be possible if I were able to reduce monthly expenses by a fairly large amount. 

The most realistic number is looking like $1,500-2,000 or so in interest based on paying them off over the next 3 years or so.  We still feel after all this discussion that our peace of mind and our monthly breathing room is worth the extra $500-1,000 in penalty we'll be paying just to get this stuff off our shoulders.  That said, we're still discussing other ways to move forward without cashing it out.  Decisions, decisions..
« Last Edit: September 18, 2012, 05:34:09 AM by SJ »

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #58 on: September 18, 2012, 05:37:13 AM »

What are your long term goals?

Well...hmm...depends on what you mean by long term.  Long-ish term we want to be completely out of debt, including our mortgage (though we're not sure how long we'll stay in this house, we figure 5-7 years and then if the livestock business is doing well we'll need more acreage).

So, say you clear out the 401k and the net from that knocks out your non-mortgage debts.  What's your plan for paying off the $250k mortgage in 5-7 years?  I haven't done the math - but I don't think your cash flow, even without the debt payments will get you there and you don't seem open to making any changes in your budget.

The plan wasn't to pay it off entirely by then, IF we need to move for larger acreage.  Ideally we'd have it paid off in 15 years or so, earlier if our financial situation gets better.  If we need to move by then we'll sell it and hopefully have a nice bit of equity already. 

Do you expect the livestock business to pick up enough that it will take care of it?  Will this then become a full time job for you?  Will it net enough to replace both your current income and the increases you'll need to pay for the mortgage (which sounds like could potentially go even higher if you buy more land)?

Let's assume that between working and the business that it does pay off all debt in 5-7 years.  What next?

Will you do any investing?  If not, do you plan on just working the livestock business forever?  What happens if it fails down the line?

I have some other business ideas that may or may not pan out as well.  So livestock is just one part of our future plans. 

Did you know that stock investing is not the only way to use the old 401k?  You can roll it into a self directed IRA and then invest in land, physical gold, or whatever else would make you more comfortable than the stock market.  You could also roll it first into an IRA and then into a self directed roth IRA since you're in a low tax bracket.  Then, in 5 years, the money will be vested in the roth ira and can be withdrawn tax and penalty free at any time or left in whatever investment makes you comfortable. 
-Based on your responses, I think this is the best option for you because...

1. Short term - it forces you to get used to having those debt payment in your budget for an extended period so that, when they are paid off, it is easy for you to just roll with saving that money.
2. No 10% penalty, but you will have access to the money in 5 years should you need it.
3. It keeps you investing in something besides just the livestock business
4. It locks in your currently low taxes on that money

Do this with accessing the money now (with the 10% penalty) if you are in dire risk of losing the house as the back up option

Yes, that's certainly one option I'm aware of, but as you noted the money can't be touched still for 5 years.  So if we decide to not cash it out, we'll definitely be looking to move it to an IRA.

Scuba Stache

  • 5 O'Clock Shadow
  • *
  • Posts: 40
  • Location: Florida
Re: Should I cash out my 401k?
« Reply #59 on: September 18, 2012, 07:26:49 AM »
I'm pretty surprised this thread has made it two pages without much tough love...and I play a terrible bad guy but will give it a shot. You have been mentioning the threat of homelessness and financial disaster, but haven't caved into giving up $1 of your current expenses, not even internet radio. I'm afraid wussypants syndrome has made an appearance. As the community has said, the obvious move here is to cut expenses and train your frugality muscles to eliminate the debt. This process alone is MUCH more valuable than the talk of ~1-2k immediate savings over 401k penalty. You need to develop a thorough understanding of your true base expenses(internet radio not included), you do not learn by taking the shortcut. Also as mentioned car loans aren't allowed in these parts, sell it and purchase an older vehicle while simultaneously saving on car insurance.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #60 on: September 18, 2012, 07:36:47 AM »
I'm pretty surprised this thread has made it two pages without much tough love...and I play a terrible bad guy but will give it a shot. You have been mentioning the threat of homelessness and financial disaster, but haven't caved into giving up $1 of your current expenses, not even internet radio. I'm afraid wussypants syndrome has made an appearance. As the community has said, the obvious move here is to cut expenses and train your frugality muscles to eliminate the debt. This process alone is MUCH more valuable than the talk of ~1-2k immediate savings over 401k penalty. You need to develop a thorough understanding of your true base expenses(internet radio not included), you do not learn by taking the shortcut. Also as mentioned car loans aren't allowed in these parts, sell it and purchase an older vehicle while simultaneously saving on car insurance.

There's been plenty of tough love telling me I'm in a house I can't afford, sell my animals, eat beans and rice and stop spending so much on groceries, get pre-paid phones, etc.  It's been made pretty clear that I don't cut the stachian mustard compared to many of you, but so be it, we're all on the path and it's a spectrum that we're working our way towards the hard-core end of.

The vehicle is old, actually...a 98 with 150k on it.  I was just stupid and didn't pay it off early as planned before the layoff hit.

But yeah, cashing the 401k is a shortcut...it's treating the debt like an emergency and paying it the F off, even if it'll be painful taking the penalty to do so; it's a different kind of pain than cutting things I don't want to out of my budget, but it's pain all the same and a lesson learned I say.  And it also has the nice effect of freeing up monthly money I'm going to need the next time a $1,500 car repair is required (like it was a few months ago)...how would I handle that now with my $350 (or $500 if I go mega-stachian) free dough each month...put it on the card?  Yup. 

Scuba Stache

  • 5 O'Clock Shadow
  • *
  • Posts: 40
  • Location: Florida
Re: Should I cash out my 401k?
« Reply #61 on: September 18, 2012, 08:07:41 AM »
Fair enough on the car situation - retracted
Everybody here has learning to do. My nudge was simply to get you to concede some of your current "needs". It is these small changes that get the ball rolling mentally and financially. You should go through your posted budget and justify each item (items such as grocery justify segments of it not as a whole) - the community doesn't need to see this, keep it on your personal computer. Again start with internet radio... I use Pandora 7 days a week and never felt the need to upgrade.

On the tips side maybe you could do some credit card arbitrage and get a new card with free balance transfer/ no interest for xx months.
Call the cable company and try to get a new promotional rate.
Shop for new car insurance

You are in debt emergency mode as you mentioned, this means comparing each budget item to your stated concerns
Internet Radio < threat of homelessness
Dinner out tonight because I'm tired < financial disaster

twinge

  • Bristles
  • ***
  • Posts: 326
Re: Should I cash out my 401k?
« Reply #62 on: September 18, 2012, 08:10:33 AM »
Quote
how would I handle that now with my $350 (or $500 if I go mega-stachian) free dough each month...put it on the card?  Yup.

I think the point everyone is making is that if and when that happens and you're truly stuck you can put it on the card, cash out the 401k and pay off the card then.  If the math of that makes sense.  But at this point, what you can do with NO penalty and NO reduction to your retirement account is trim your expenses.  And when people make all those suggestions of places to trim it's not that you have to do all of them but select among them in whatever way will free up some extra cash.

If you want to free up cash flow quicker, save up as much as you can and knock out the smallest debt payment asap.  That way you have one less minimum payment in the budget.  And then you have $30 a month to add to the next payment you're going to knock out.
 
If you can do that regularly until the debt is gone and you don't happen to have a major car repair, flood, medical bill etc. you end up with the debt gone and your 401k intact.  The 401k balance is always there for your "peace of mind" ... so leave it there and do the harder work of trimming your expenses first.  The math tells you that is the correct approach and your lifestyle is out of balance to the point that if you do cash out the account you may  be in this position again (without a 401k account to cash out) not too long from now if you don't make the lifestyle adjustments anyway. There's just not enough space in your expenses to handle the variable expenses that come up when you own things and save for retirement etc.
« Last Edit: September 18, 2012, 08:12:54 AM by twinge »

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #63 on: September 18, 2012, 08:20:37 AM »
Fair enough on the car situation - retracted
Everybody here has learning to do. My nudge was simply to get you to concede some of your current "needs". It is these small changes that get the ball rolling mentally and financially. You should go through your posted budget and justify each item (items such as grocery justify segments of it not as a whole) - the community doesn't need to see this, keep it on your personal computer. Again start with internet radio... I use Pandora 7 days a week and never felt the need to upgrade.

On the tips side maybe you could do some credit card arbitrage and get a new card with free balance transfer/ no interest for xx months.
Call the cable company and try to get a new promotional rate.
Shop for new car insurance

You are in debt emergency mode as you mentioned, this means comparing each budget item to your stated concerns
Internet Radio < threat of homelessness
Dinner out tonight because I'm tired < financial disaster

I appreciate the responses, I really do.  I'm definitely not hard-core, but we're getting there.  A year ago we were in a totally different place and spent money like crazy.  I mean, if it was less than $100 and I wanted it, I didn't even think about it, I just bought it...I guess that's what I thought I could do when I had thousands of dollars of "excess" funds every month.  Man, if only I had gotten on this bandwagon sooner!  So yeah, we've come a long way even though it may not look like it from this thread.

Card arbitrage is a great idea and one I might be able to pull off...then again, maybe not with all this debt. 

No cable here, thankfully!  As for internet, I have pretty much the only high speed option out here (which I do need due to video conferencing "needs" with my out of state children).  The other options, while cheaper, wouldn't even run Skype properly. 

We rarely eat out...most of those expenses for eating out involved birthday or holiday celebration, or purchases at gas stations, not just laziness.  We can't even so much as get a pizza out here, and the nearest fast food place is nearly 10 miles away.

I've shopped around for car insurance and can't find much better.  The figure listed is for two vehicles (one is paid off), one with full coverage due to the loan.  If I can pay that off, I can also save on insurance.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Should I cash out my 401k?
« Reply #64 on: September 18, 2012, 08:29:36 AM »
Scuba's right.  There needs to be more face punching here.

A few have tried (John Galt is usually pretty good at it), but SJ keeps shrugging off and making excuses.

it's a spectrum that we're working our way towards the hard-core end of.

I'm definitely not hard-core, but we're getting there.

You keep saying this, but I don't think you know what it means.  Literally, I think you don't understand.

Until your expenses are < 1k/month, I don't think you're approaching hard core.

You are nowhere close to even being Mustachian in your spending, let alone getting "hard core."

Your spending is atrocious, you have a refusal to change it, and you shoot down every single suggestion with excuses.

Go punch yourself in the face.  Or make another excuse as to why you shouldn't, and everything is fine.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5109
Re: Should I cash out my 401k?
« Reply #65 on: September 18, 2012, 09:34:05 AM »
I don't see any comments on the second property, the one that's on the Visa card.  Why did you buy this property?  Given the change in your financial circumstances, is this something that would make sense to sell?  Any equity could go to paying off the other debts and your monthly payments would decrease by the amount of that Visa payment.

The recurring theme in the OP's thought process and in the thought process of so many people asking for guidance on this forum is purchasing things they really can't afford today because they plan to use them in the future and can buy the item today at a good price.  Examples are a big house or a multi-passenger van because a poster intends to have children.  I see some of that rationalizing here with the properties and the livestock.  Your income has been severely cut, and I have not seen a discussion of how you intend to get it back where it was.  Yet you hold on to things like property and animals that you really cannot afford on a permanently reduced income.  It appears you are trying to start a business (livestock) that will take expensive assets and a lot of time and working capital to make successful.  This is not the time to do this as you simply do not have the working capital to operate an unprofitable business with your reduced income.

In your shoes, I would take a hard look at what I would have to do to live reasonably comfortably and to be able to save significant sums of money on the current family income.  Then I would look at what it would realistically take (moving. more education, etc.) to get my income back to what it was. 

Eventually you will need to make a decision to dramatically reduce the lifestyle or to do whatever is needed to increase the family income.  Cashing out the 401k is a band-aid.  In my view, you will fail long term unless you plan more realistically.
« Last Edit: September 18, 2012, 12:06:01 PM by Another Reader »

Sylly

  • Bristles
  • ***
  • Posts: 267
Re: Should I cash out my 401k?
« Reply #66 on: September 18, 2012, 09:40:48 AM »
... eat beans and rice and stop spending so much on groceries, get pre-paid phones, etc.  It's been made pretty clear that I don't cut the stachian mustard compared to many of you, but so be it, we're all on the path and it's a spectrum that we're working our way towards the hard-core end of.

I'm not a hardcore mustachian by any means, so I'll try to address these points for you:

Groceries: Sounds like you're in a household of two, with the need to feed your client as well. Say it's for 2.5 people then, unless you need to feed your client for every meal. Compared to your grocery spending, mine (for two people) is less than half (closer to a third actually), and I am by no means on a rice and beans diet. I don't deprive myself either, and my household meals tend to actually be fairly meat-heavy, with some specialty items because of dietary restrictions. So I find it hard to believe that there's no room to reduce your grocery spending by $200 without sacrificing the quality of food. I'm sure there are posts and/or threads here that cover tips & tricks to cut grocery spending. Try those.

Phones: There are people much better versed in how to get the most out of a low cost phone plan, but this is my trick -- only pay for a plan that covers your need and no more. How many minutes do you really need? Do you really need that data plan, or is it just nice to have? End result, for less than what you pay, my plan covers 4 people.

Nobody's giving you grief for not being hardcore Mustachian. People are giving you grief because you shoot down every suggestion to help you move any distance toward the Mustachian end of the spectrum.

Edit:
Even with keeping payment to CC1 at minimum of 225, and not reducing expenses, my spreadsheet says your total interest cost is still under 2k, and debt done in 30 months.

I understand your desire for peace of mind. But keep in mind you're not only losing the withdrawal penalty, you're also losing any potential investment gain from that stash.
« Last Edit: September 18, 2012, 09:48:09 AM by Sylly »

jpo

  • Pencil Stache
  • ****
  • Posts: 518
  • Age: 32
  • Location: North Carolina
Re: Should I cash out my 401k?
« Reply #67 on: September 18, 2012, 10:20:36 AM »
It sounds to me like part of what's going on here is this from ERE:
Quote
The second and more important aspect is the $7,000/year. The Wheaton Eco-scale explains this in a brilliant way. Consider people living at different budgets, e.g. $100k, $80k, $60k, $50k, $40k, $30k $20k, $15k, $10k, $7.5k, $5k, $2.5, $1k, and $0k. Now, what Wheaton observes is that people who spend one or two levels below you are inspiring to you in terms of budget reductions. People who spend three levels below you are slightly nutty and people who spend four or more levels below your level are crazy or downright extreme. This holds no matter where you are. If you spend 60k, then 50k and 40k is inspiring, 30k is nutty and 20k is crazy. If you spend 30k, then 20k and 15k is inspiring, 10k is nutty, and 7.5k is crazy. Conversely, people who spend a couple of levels above you are considered prodigal and wasteful.
OP is several spending levels up from the average Mustachian on these boards, so we look crazy to him and he looks wasteful to us. My guess is that he's already cut lots of spending and feels like his frugality muscles are already flexed to the max.

I don't see any comments on the second property, the one that's on the Visa card.  Why did you buy this property?  Given the change in your financial circumstances, is this something that would make sense to sell?  Any equity could go to paying off the other debts and your monthly payments would decrease by the amount of that Visa payment.
Supposedly it would take a few years to liquidate this.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 36
  • Location: Oregon
Re: Should I cash out my 401k?
« Reply #68 on: September 18, 2012, 12:04:14 PM »
OP is several spending levels up from the average Mustachian on these boards, so we look crazy to him and he looks wasteful to us. My guess is that he's already cut lots of spending and feels like his frugality muscles are already flexed to the max.

Maybe...but I expect this has more to do with the ratio than the actual expenses. If the OP made $250k, I think people would say "you could do better, but at least you're below your means." But the OP has basically said they live at or above their means (once you factor irregular expenses) but is still unwilling to lower their standard of living.

Plus, he came here asking for honest advice and got it, it just wasn't what he wanted to hear. There is something supremely grating about people who act like they want help, but then come up with excuses why their situation is out of their control. People have offered 1001 reasons cashing out the 401k is a bad idea, but he still says he wants to do it. If he was going to cash it out anyway, why even bother asking the question?

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #69 on: September 18, 2012, 12:44:30 PM »
Scuba's right.  There needs to be more face punching here.

A few have tried (John Galt is usually pretty good at it), but SJ keeps shrugging off and making excuses.

it's a spectrum that we're working our way towards the hard-core end of.

I'm definitely not hard-core, but we're getting there.

You keep saying this, but I don't think you know what it means.  Literally, I think you don't understand.

Until your expenses are < 1k/month, I don't think you're approaching hard core.

You are nowhere close to even being Mustachian in your spending, let alone getting "hard core."

Your spending is atrocious, you have a refusal to change it, and you shoot down every single suggestion with excuses.

Go punch yourself in the face.  Or make another excuse as to why you shouldn't, and everything is fine.

Atrocious?  Wow, really?  I think even you know that's hardly true.  Not hardcore?  Yeah.  But atrocious?

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #70 on: September 18, 2012, 12:54:48 PM »
... eat beans and rice and stop spending so much on groceries, get pre-paid phones, etc.  It's been made pretty clear that I don't cut the stachian mustard compared to many of you, but so be it, we're all on the path and it's a spectrum that we're working our way towards the hard-core end of.

I'm not a hardcore mustachian by any means, so I'll try to address these points for you:

Groceries: Sounds like you're in a household of two, with the need to feed your client as well. Say it's for 2.5 people then, unless you need to feed your client for every meal. Compared to your grocery spending, mine (for two people) is less than half (closer to a third actually), and I am by no means on a rice and beans diet. I don't deprive myself either, and my household meals tend to actually be fairly meat-heavy, with some specialty items because of dietary restrictions. So I find it hard to believe that there's no room to reduce your grocery spending by $200 without sacrificing the quality of food. I'm sure there are posts and/or threads here that cover tips & tricks to cut grocery spending. Try those.

Yes, I agree, I can get it down by $100-200.  But it's a full 3 people as he is basically a member of the family since he lives here (actually, 3.5 considering that my wife and I often eat 2 meals a day, my client eats a full 3 and then some if I let him). 

Phones: There are people much better versed in how to get the most out of a low cost phone plan, but this is my trick -- only pay for a plan that covers your need and no more. How many minutes do you really need? Do you really need that data plan, or is it just nice to have? End result, for less than what you pay, my plan covers 4 people.

We're actually on a low minute plan, and it's a family plan.  I could remove texting, but I use it a lot.  A convenience for sure, but one I'm not yet willing to get rid of.  We spend a lot of time in cars, in doctors office, waiting around for buses...having smart phones has been wonderful and it's a luxury I'm not going to give up any time soon.  I know what it's costing me, but frankly it's worth it.


JohnGalt

  • Bristles
  • ***
  • Posts: 482
  • Age: 34
  • Location: TX
Re: Should I cash out my 401k?
« Reply #71 on: September 18, 2012, 01:26:14 PM »
It seems to me like you're still reeling from the layoff from your high paying job and have not come to terms with the fact that instead of being on the upper end of the income spectrum - you are now closer to the middle.  Because of this, you're still comparing yourself to your old peers (like the ones with the more expensive properties in your area) and you feel like you are in bad shape, one car repair away from homelessness.

This has you thinking emotionally and short term rather than logically and long term.
It has you shooting down nearly every suggestion that has been made here.
Forget about where you used to be and look at where you are vs where you want to be 5, 10, 20 years from now. 
Go ahead and raid the 401k now to give you some short term peace of mind, $20k is not going to make or break you in the long run - but at some point you need to take a hard look at where you want to be and figure out if your current habits will get you there in the time frame you want. 

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #72 on: September 18, 2012, 01:48:08 PM »
It seems to me like you're still reeling from the layoff from your high paying job and have not come to terms with the fact that instead of being on the upper end of the income spectrum - you are now closer to the middle.  Because of this, you're still comparing yourself to your old peers (like the ones with the more expensive properties in your area) and you feel like you are in bad shape, one car repair away from homelessness.

I'm not really comparing myself to anyone, especially not my neighbors.  Most of the homes I consider excessive, especially the big ones that are in the millions!  I'm proud of my little home that perfectly fits our needs (even if we could use one more bedroom).  I actually feel like we're very fortunate to be where we are in life.  Living in a modest but nice home out of the burbs and closer to nature, 3 great kids, a superb wife, don't have to trudge in to some crappy cube farm on a daily basis, my chronic medical condition under control more than it ever has been...yeah, life is pretty good right now. 

When I say one car repair away from homelessness, I guess that's a bit of an exaggeration...or is it?  With only a few hundred dollars to spare every month, if my client decided to leave, or even go on vacation for a week and in that same month I get hit with even a $500 expense I wasn't expecting, I'd not be able to pay my mortgage.  Sure, they wouldn't foreclose that fast, but that would put me behind enough that without outside help I might not recover in time to stop foreclosure. 

Forget about where you used to be and look at where you are vs where you want to be 5, 10, 20 years from now. 
Go ahead and raid the 401k now to give you some short term peace of mind, $20k is not going to make or break you in the long run - but at some point you need to take a hard look at where you want to be and figure out if your current habits will get you there in the time frame you want.

Glad someone sees that raiding a minuscule 401k isn't the end of the world and won't put us off FI in the long run.  Still haven't decided we're doing it though it's certainly a better option than the one I spelled out above, which isn't out of the realm of possibility.

And yeah, we are reassessing everything right now and trying to figure out first what our long term plan is, and then how we're going to get there.  It's been a rough and tumble past year and we're just really needing some room to breath and a clear path forward.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Should I cash out my 401k?
« Reply #73 on: September 18, 2012, 06:58:06 PM »
Will someone less lazy than I go through and count the number of excuses SJ has made in this thread?  It's gotta be over twenty.  At this point I feel like you're just trolling us, that this is all made up to see how ridiculous you can be.

If it's true though SJ, I feel like today's MMM post was written for you:
www.mrmoneymustache.com/2012/09/18/is-it-convenient-would-i-enjoy-it-wrong-question/

Specifically:
Quote
If you still need to work for money, or at the very least, if you’re not saving at least 50% of your take-home pay, you can not afford it. Where “it” is anything.

You not only aren't saving 50%... You aren't saving anything, you're spending everything! And worse, you're doing it with massive debt!  Bad, terrible, high interest debt!

You cannot afford that Internet radio.  Or Netflix. Or those expensive cell phone plans.  Or wasteful grocery spending.  Or the dozen other things that people have pointed out.

You cannot afford that stuff even if you had NO debt.  Even if you cash out your 401k and pay off all debt, you can't afford it!  Cut your spending, stop making excuses, pay off the debt, and increase your savings!

Because you can't afford the life you are living.  You're set to work as a voluntary slave until you're 70+, and be miserable about money while you do it.

Stop it.
« Last Edit: September 18, 2012, 07:00:42 PM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

James

  • Handlebar Stache
  • *****
  • Posts: 1680
  • Age: 47
  • Location: Rice Lake, WI
Re: Should I cash out my 401k?
« Reply #74 on: September 18, 2012, 07:27:14 PM »
Atrocious?  Wow, really?  I think even you know that's hardly true.  Not hardcore?  Yeah.  But atrocious?


Yes, Atrocious, and abominable, alarming, appalling , deplorable, depressing, dire, distressing, dreadful, frightful, ghastly, harrowing, hideous, horrendous, horrible, horrific, shocking, unsightly... etc


That is our view based on your income and expenses.  You asked, we answered.

kkbmustang

  • Handlebar Stache
  • *****
  • Posts: 1286
Re: Should I cash out my 401k?
« Reply #75 on: September 18, 2012, 07:47:18 PM »
Will someone less lazy than I go through and count the number of excuses SJ has made in this thread?  It's gotta be over twenty.  At this point I feel like you're just trolling us, that this is all made up to see how ridiculous you can be.

If it's true though SJ, I feel like today's MMM post was written for you:
www.mrmoneymustache.com/2012/09/18/is-it-convenient-would-i-enjoy-it-wrong-question/

Specifically:
Quote
If you still need to work for money, or at the very least, if you’re not saving at least 50% of your take-home pay, you can not afford it. Where “it” is anything.

You not only aren't saving 50%... You aren't saving anything, you're spending everything! And worse, you're doing it with massive debt!  Bad, terrible, high interest debt!

You cannot afford that Internet radio.  Or Netflix. Or those expensive cell phone plans.  Or wasteful grocery spending.  Or the dozen other things that people have pointed out.

You cannot afford that stuff even if you had NO debt.  Even if you cash out your 401k and pay off all debt, you can't afford it!  Cut your spending, stop making excuses, pay off the debt, and increase your savings!

Because you can't afford the life you are living.  You're set to work as a voluntary slave until you're 70+, and be miserable about money while you do it.

Stop it.

I counted 23ish.

Lars

  • Stubble
  • **
  • Posts: 105
Re: Should I cash out my 401k?
« Reply #76 on: September 18, 2012, 09:39:57 PM »
Will someone less lazy than I go through and count the number of excuses SJ has made in this thread?  It's gotta be over twenty.  At this point I feel like you're just trolling us, that this is all made up to see how ridiculous you can be.

If it's true though SJ, I feel like today's MMM post was written for you:
www.mrmoneymustache.com/2012/09/18/is-it-convenient-would-i-enjoy-it-wrong-question/

I counted 23ish.

Sadly, I don't think he is trolling us. My wife and I provide financial mentoring to someone right now who must be SJs twin judging by the way they make up excuses. I wish I could distill down his plan or SJ plan into something short and sensible but all than comes into my mind is the plan of the underpants gnome. Fundamentally, their current plan doesn't have a long term chance of success but I dispair of convincing him as I imagine some of you here do. I wish could make this point really sink in:

YOU CAN STILL CHANGE. IF YOU WANT TO REACH YOUR GOAL AND YOUR CURRENT PLAN ISN"T WORKING, MAKE A NEW PLAN AND MAKE CHANGES. Sure what your doing is nice but if it was a great idea you wouldn't be in the situation in the first place and you wouldn't need to change. We have all done stupid crap but the time for that is over.

tannybrown

  • Stubble
  • **
  • Posts: 118
  • Age: 39
  • Location: South Scottsdale, AZ
Re: Should I cash out my 401k?
« Reply #77 on: September 18, 2012, 10:44:35 PM »
I vote to cash out the 401k.  You're not ready to make changes, so cashing out the 401k and removing this last safety net will accelerate your life to the "ready" state. 

Good luck!

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #78 on: September 19, 2012, 05:36:33 AM »
I think we've beaten this one true and dead.  Yes, I'm a clown, a dolt, an atrocious spender, a troll, an underpants gnome, and a non-mustachian who is bound for financial disaster and working well into his 90's just to put food on the table.  I'll be sure to come back and post in this thread when my financial life has completely blown up in my face (oh, and I'll also post an update if by some miracle I manage to survive and make this work somehow).  I'm sure we'll all get a good chuckle either way. 

Thanks again to everyone who offered advice, thoughts, insight, and well-deserved face punching. 

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #79 on: September 19, 2012, 06:25:27 AM »
One thing I wanted to throw in here is that IF we decide to raid the 401k and pay off this debt, that will put us in a better position to refinance our mortgage on maybe a 15 year at a new low interest rate of maybe 2.75% (currently at 3.75%).  Doing that will save us many thousands in interest and will completely negate the small penalty we'll pay on the 401k distro (and lost investment gains).  This refi wouldn't be possible with our current debt load and would take years to pull off if we don't take the distro and pay off the debt (and by then, interest rates might have gone back up).

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5109
Re: Should I cash out my 401k?
« Reply #80 on: September 19, 2012, 06:37:13 AM »
You previously stated you have only owned the house for a year and have very little equity.  How would you be able to refinance at today's favorable rates without equity?

It sounds like you want to get past the debt before you make any long term plans.  To me, this is backwards.  In your shoes, I would plan either to increase my income or to live long-term on a reduced and not entirely predictable income.  Once I knew what my longer term plan was, then I would decide what to do about the debt.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Should I cash out my 401k?
« Reply #81 on: September 19, 2012, 06:41:44 AM »
The Fed stated a week ago with QE3 they intend to keep rates low through 2015.  I do not doubt them, based on the past 3 years behavior.

So that gives you some time to kick it into Mustachian mode, pay off the debt, and still refi, if you want (though 3.75% is a great rate).

Though I don't know why you say 15 year.  That seems like a terrible idea, given your situation.  30 year provides a much lower payment, and you can always prepay and turn it into a 15-year loan (or less).

Despite the comments here, we do wish you well, believe it or not.  Whether you cash in the 401k or not, I wish you the best in getting control of your spending and debt, and starting on a new path to Mustachianism.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #82 on: September 19, 2012, 06:43:01 AM »
You previously stated you have only owned the house for a year and have very little equity.  How would you be able to refinance at today's favorable rates without equity?

There is probably $10k in equity right now.  But I was thinking more along the lines of a "loan restructuring" than a refi...though admittedly I don't know much about how that works.  That said, do refi's require a lot of equity?  In our case, it will be a VA loan, if that makes a big difference in your answer.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #83 on: September 19, 2012, 06:47:32 AM »
The Fed stated a week ago with QE3 they intend to keep rates low through 2015.  I do not doubt them, based on the past 3 years behavior.

So that gives you some time to kick it into Mustachian mode, pay off the debt, and still refi, if you want (though 3.75% is a great rate).

Though I don't know why you say 15 year.  That seems like a terrible idea, given your situation.  30 year provides a much lower payment, and you can always prepay and turn it into a 15-year loan (or less).

It was my understanding that actually doing a 15 year would allow me to negotiate a lower rate than a 30 year does...am I mistaken?  And yes, given my current situation it would be a terrible idea, but once the debt is gone it would be much more doable.  But yes, I could just repay early and keep the lower payment...my thought was negotiating a lower rate, but if I can do that without going 15 then that's indeed what I would do.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Should I cash out my 401k?
« Reply #84 on: September 19, 2012, 06:48:24 AM »
You previously stated you have only owned the house for a year and have very little equity.  How would you be able to refinance at today's favorable rates without equity?

There is probably $10k in equity right now.  But I was thinking more along the lines of a "loan restructuring" than a refi...though admittedly I don't know much about how that works.  That said, do refi's require a lot of equity?  In our case, it will be a VA loan, if that makes a big difference in your answer.

10k on a 250k house is 4% equity (aka 96% LTV).  I don't think a refi (or restructure) will be possible, even if you had no debt besides the mortgage.

The 3.75% rate you have is pretty darn good, I wouldn't be unhappy with that at all.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28127
  • Age: -999
  • Location: Seattle, WA
Re: Should I cash out my 401k?
« Reply #85 on: September 19, 2012, 06:50:32 AM »
The Fed stated a week ago with QE3 they intend to keep rates low through 2015.  I do not doubt them, based on the past 3 years behavior.

So that gives you some time to kick it into Mustachian mode, pay off the debt, and still refi, if you want (though 3.75% is a great rate).

Though I don't know why you say 15 year.  That seems like a terrible idea, given your situation.  30 year provides a much lower payment, and you can always prepay and turn it into a 15-year loan (or less).

It was my understanding that actually doing a 15 year would allow me to negotiate a lower rate than a 30 year does...am I mistaken?  And yes, given my current situation it would be a terrible idea, but once the debt is gone it would be much more doable.  But yes, I could just repay early and keep the lower payment...my thought was negotiating a lower rate, but if I can do that without going 15 then that's indeed what I would do.

Yes, 15 year tends to have slightly lower rates.  Not worth the loss of flexibility, especially when you get into a situation like you're in.

Additionally, the rates are so low it's probably worth NOT prepaying.. Letting the loan last 30 years and investing all extra money.  Mortgage is basically free money right now after inflation and interest deduction.  I'd take out 40 or 50 year loans right now if I could.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #86 on: September 19, 2012, 06:55:02 AM »
You previously stated you have only owned the house for a year and have very little equity.  How would you be able to refinance at today's favorable rates without equity?

There is probably $10k in equity right now.  But I was thinking more along the lines of a "loan restructuring" than a refi...though admittedly I don't know much about how that works.  That said, do refi's require a lot of equity?  In our case, it will be a VA loan, if that makes a big difference in your answer.

10k on a 250k house is 4% equity (aka 96% LTV).  I don't think a refi (or restructure) will be possible, even if you had no debt besides the mortgage.

The 3.75% rate you have is pretty darn good, I wouldn't be unhappy with that at all.

Our rate right now is great, indeed!  But 1% less would be stellar on such a large loan.  Do you know what the LTV has to be for a refi/restructure on an VA loan?

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #87 on: September 19, 2012, 06:56:47 AM »
The Fed stated a week ago with QE3 they intend to keep rates low through 2015.  I do not doubt them, based on the past 3 years behavior.

So that gives you some time to kick it into Mustachian mode, pay off the debt, and still refi, if you want (though 3.75% is a great rate).

Though I don't know why you say 15 year.  That seems like a terrible idea, given your situation.  30 year provides a much lower payment, and you can always prepay and turn it into a 15-year loan (or less).

It was my understanding that actually doing a 15 year would allow me to negotiate a lower rate than a 30 year does...am I mistaken?  And yes, given my current situation it would be a terrible idea, but once the debt is gone it would be much more doable.  But yes, I could just repay early and keep the lower payment...my thought was negotiating a lower rate, but if I can do that without going 15 then that's indeed what I would do.

Yes, 15 year tends to have slightly lower rates.  Not worth the loss of flexibility, especially when you get into a situation like you're in.

Additionally, the rates are so low it's probably worth NOT prepaying.. Letting the loan last 30 years and investing all extra money.  Mortgage is basically free money right now after inflation and interest deduction.  I'd take out 40 or 50 year loans right now if I could.

Yeah, I've thought about that too...I just like the idea of having a paid off home..talk about peace of mind.

WaxOnWaxOff

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: Should I cash out my 401k?
« Reply #88 on: September 19, 2012, 07:05:19 AM »
I don't know what the requirements are specifically for a VA loan, but I recently refinanced and the bank required at least 20% equity. If you don't have a chunk of equity, a stellar credit rating, and a favorable debt-to-income ratio, you don't have much negotiating room.
« Last Edit: September 19, 2012, 07:13:34 AM by WaxOnWaxOff »

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #89 on: September 19, 2012, 07:18:28 AM »
I don't know what the requirements are specifically for a VA loan, but I recently refinanced and the bank required at least 20% equity. If you don't have a chunk of equity, a stellar credit rating, and a favorable debt-to-income ratio, you don't have much negotiating room.

Well, we will (if we take the distro) have all of the above except for the equity.  So I guess we'll focus on paying it down until we have some decent equity, which will also save us a lot of interest in the long run.  No rush I guess though, since we don't have PMI that we need to get rid of.

jp

  • Stubble
  • **
  • Posts: 129
Re: Should I cash out my 401k?
« Reply #90 on: September 19, 2012, 08:50:34 AM »




SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #91 on: September 19, 2012, 09:05:52 AM »
Found this on the Wikipedia article for VA loans:  "In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount."  So it looks like LTV isn't an issue if doing a refi ends up making sense.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5109
Re: Should I cash out my 401k?
« Reply #92 on: September 19, 2012, 09:18:03 AM »
Since the loan is VA, you may be able to qualify under this program.  However, the reduced income will probably lock you out because of debt to income ratio requirements.

http://www.benefits.va.gov/homeloans/irrrl.asp

Check with the folks that did your original loan to see what you would have to do to qualify.  Perhaps knocking out the other debt would get your debt to income ratio down to the point you would qualify.  I'm not sure you will get enough of an interest rate reduction to make the refinance worthwhile, but it's worth investigating.  If you can qualify, then shop the rate and terms.  For example, PenFed is offering 3.25 percent for a standard VA refi.

https://www.penfed.org/mortgage-rates-all/

Click on VA fixed.


SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #93 on: September 19, 2012, 09:24:44 AM »
Since the loan is VA, you may be able to qualify under this program.  However, the reduced income will probably lock you out because of debt to income ratio requirements.

http://www.benefits.va.gov/homeloans/irrrl.asp

Check with the folks that did your original loan to see what you would have to do to qualify.  Perhaps knocking out the other debt would get your debt to income ratio down to the point you would qualify.  I'm not sure you will get enough of an interest rate reduction to make the refinance worthwhile, but it's worth investigating.  If you can qualify, then shop the rate and terms.  For example, PenFed is offering 3.25 percent for a standard VA refi.

https://www.penfed.org/mortgage-rates-all/

Click on VA fixed.

Thanks for the links.  I found this bit of good news within:  "The occupancy requirement for an IRRRL is different from other VA loans.  When you originally got your VA loan, you certified that you occupied or intended to occupy the home.  For an IRRRL you need only certify that you previously occupied it."  That'd be great if we ever decided to turn it into a rental property.

grantmeaname

  • Magnum Stache
  • ******
  • Posts: 4836
  • Age: 27
  • Location: NYC
  • Cast me away from yesterday's things
Re: Should I cash out my 401k?
« Reply #94 on: October 09, 2012, 04:19:53 PM »
I'm sad this thread died out without much of a revolution, but I know I've seen SJ around recently.

SJ, what did you end up doing? Regardless of which path you ended up with, are you interested in trimming some fat out of your budget?


There's two pages. It all makes sense now. *tableface*
« Last Edit: October 09, 2012, 04:25:03 PM by grantmeaname »

grantmeaname

  • Magnum Stache
  • ******
  • Posts: 4836
  • Age: 27
  • Location: NYC
  • Cast me away from yesterday's things
Re: Should I cash out my 401k?
« Reply #95 on: October 09, 2012, 04:34:24 PM »
And now that I'm at the actual end, do you have any updates for everyone, SJ?

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #96 on: October 10, 2012, 06:42:18 AM »
I do have an update, thanks for asking.  Update:

Total debt: $252k on a 30 year VA mortgage loan @ 3.75%

Boy does it feel good to type that!!  Worth the small penalty we took!

Next step is to refi the mortgage and get it down to 3.25% if we can.

And yes, we are trying to cut expenses, particularly our grocery expenses but we are also looking at other areas.  Our savings will now go from about $200/month up to about $1k/month, presuming no major disasters from month to month of course.  We're keeping the credit cards with a $0 balance as our severe emergency fund and they will only be used in a dire case (though we may use our rewards card to pay for monthly expenses, and pay it off entirely each month).

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Re: Should I cash out my 401k?
« Reply #97 on: October 10, 2012, 09:00:23 AM »
Have you re-evaluated your spending yet?

I found your cellphone bill ($130/month plus an unspecified amount of reimbursed expenses for two phones) to be particularly absurd. Even if you want to keep the smartphone and data plan(s) -- and I don't blame you if you do -- you can do a lot better.

For example, I pay $40/month for 1200 voice minutes, unlimited text and unlimited data on Virgin Mobile (a MVNO that uses the Sprint network). I'm grandfathered in, but not by much: it might be $45/month if you started the same plan today. Similar deals are available from most MVNOs (aka prepaid companies), so you can pick a different one if you want to be on a different network.

In other words, you have absolutely no excuse to be paying more than $90/month (minus whatever gets reimbursed) for cell phones for you and your wife, in my opinion.

SJ

  • 5 O'Clock Shadow
  • *
  • Posts: 67
Re: Should I cash out my 401k?
« Reply #98 on: October 10, 2012, 09:40:14 AM »
Yes, we're reevaluating everything.  The cell phone amount is actually AFTER the $60 reimbursement...so it's far worse than you thought!  Some of that is for the microcell we have, which gives us 5 bars of coverage in our house plus unlimited calling from home (we had to get it because cell phone coverage is sooooo bad out here that we'd be hard pressed to even make a single call without it).  I think that adds $25 a month or so, but cheaper than a landline.

But yes, I know we can do better.  So we'll be looking into it.  We're under contract, so I'm not sure when we can change carriers, but we'll see.

LadyM

  • 5 O'Clock Shadow
  • *
  • Posts: 96
  • Location: Northern VA / DC Area
Re: Should I cash out my 401k?
« Reply #99 on: October 10, 2012, 10:50:59 AM »
I do have an update, thanks for asking.  Update:

Total debt: $252k on a 30 year VA mortgage loan @ 3.75%

Next step is to refi the mortgage and get it down to 3.25% if we can.


Check this out to see if it's even WORTH the time and closing costs to lower your mortgage by only 0.5%

http://zwicke.nber.org/refinance/

I found this extremely helpful when we refi'd to 2% less than what we were paying AND from an interest-only 30 year, to a plain vanilla 30-year mortgage.  THAT was worth it.  Just don't forget to factor in those closing costs....and heck do you even have them available?

It might not be worth it at this point....given how long you plan to stay in the house, how much principle you have left to pay, what the closing costs are, yadda, yadda.  It might be worth your while to wait a few years. 

Another thing to keep in mind, as we were almost sunk by this....  AFTER closing costs, in order to close the loan we needed to have available in cash (combined savings, checking, 401K...but you don't have that anymore) 2x your monthly mortgage payment.  The underwriters wouldn't sign off on us unless we had that, even though our new payment would be $100 a month less than our current payment at the time.  If you have a VA loan, their terms might be different.

Food for thought is all.