Opinions, plz: 59 1/2 yrs old - should I withdraw from IRA to pay credit cards?

[LoriAusTex]

Hi, Tribe of Mustachians! I am very new to MMM, and I am so glad I'm here! <waves to everybody>

I have a question for all y'all (yes, I spent a LONG time in Texas).
I turn 59 1/2 in the very near future.
Due to not paying attention, which I am here to change...I have over $35,000 in credit card debt. (Ugh, and yikes.)
I do have a number of other assets, including a home with an affordable mortgage, and nearly $300,000 in a regular IRA. I have a well-paying job that seems stable, and which I enjoy - but I am not saving as much as I'd like (currently setting 6% aside in a 401K, no matching, and trying to pay off those darn cards). My hubby is a wonderful gent, but he's not able to work, and hasn't got much interest in the money side of things...so this is all mine to handle.

I'm wondering what your thoughts are about (once I can do it without penalty) taking money from the IRA to pay off those credit cards in one fell swoop? Pros? Cons?

Interest rate on the lower balance card is 8.24%, and on the higher balance card it's 6.90%.
I've been averaging roughly 8% returns on the IRA investments.

Thanks for whatever thoughts you'd care to share.

[FrugalHeights]

Below is just my personal opinion. Hopefully others will add.

I would take IRA money (when no penalty) to pay off all your credit card debt.
No one guarantees that the market will continue to grow, but the interest rates on your cards are guaranteed. Also, I am biased because I am very debt averse. But paying credit card debt still makes financial sense in your situation because the market growth rate and your interest rates are comparable.
After you pay the credit card debt, I would focus on putting more into 401k. Hopefully, by being here, on the MMM forum, you will easily find extra $$ for 401k :)

Best of luck!
My hubby is also a wonderful gent, and also is not interested in the money side of things :)
Shout out to all ladies with wonderful-but-not-interested-in-money gents!

[ditheca]

Hey, my DW is wonderful, but uninterested in the money side of things. Goes both ways I guess.  Glad to see so there's so many wonderful spouses though!

I'd also advocate getting out of debt before trying to increase the stash.

[Notch]

+1 to paying off the credit cards ASAP.

But while you wait for access to your IRA, do a 0% balance transfer to a new card if you can, and cut them all up.

[LoriAusTex]

All y'all - thanks so much for weighing in! I posted in the "tax" section because I believe that the withdrawal from the IRA would be taxable (we're in the top third of the 25% tax bracket for 2017, so even with that withdrawal I don't believe I'd tip into the 28% bracket). Since my tax people are fairly laid-back about fast replies, would that be significant factor? It doesn't seem like it to me, but I'm new at all this.

[the_fixer]

My hesitation to tapping into one of your investments to pay off credit card debt is that it is easy to get back into credit card debt so make sure that you make the necessary changes to prevent you from going back into credit card debt.

And if you are in the high 25% tax bracket, only putting away 6% and struggling with credit card debt you should post a case study and see where you can make changes that might help.


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[seattlecyclone]

I agree with others that withdrawing from an IRA to pay off the credit cards is a good idea. You get a guaranteed 8% return on that investment.

I also agree that you need to address the spending side of the equation so that you never carry a credit card balance again.

Tax rates are generally going down in the new year. Waiting until January 1 to initiate the withdrawal could be a good idea, even if your 59½ birthday happens before that.

[Dee18]

I agree with poster who suggested you post a case study before making this decision.  That tax hit would be a lot!  If you treat this as a hair on fire emergency could you pay off the debt in one year?

[Another Reader]

I would not do this.  You are too close to retirement and have dramatically undersaved.  There is no guarantee that you can continue to work until your full retirement age or beyond.  You need to prioritize retirement savings.

In your shoes, I would look at all the household spending and cut it to the bone.   I understand your husband does not work, but can he take on some work at home type projects to bring in a little income?  Is he on disability?  If not, should he be?  Does he handle all the household management since you bring in the income?  Does he cook at home, grocery shop, clean, and do minor repairs?    All these things can save you a lot of money.  Every saved penny should go to paying off the debt except for what is needed for retirement.

I agree with the posters that a full case study is in order.  How much longer will you have the mortgage?  Will it be "affordable" on just your Social Security check and your savings?  What about your car(s)?  Are they paid for?  When will they need to be replaced?  How will you pay for that?  You cannot continue to accrue consumer debt and hope to retire.

[LoriAusTex]

Hello, kind people who've shared your thoughts with me! Much to consider - but I am new enough here that I'm not yet ready to post a case study, so will close out here for now. Thank you all for your ideas and consideration. Now, back to reading the MMM blog I go...

[the_fixer]

Well that didn’t take long....


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[bugbaby]

What you withdraw will be taxed at your marginal rate (non-Roth IRA), and will lose out on market gains.

You have a good income. Cut expenses drastically.  Also if you have assets like vehicles worth something can you liquidate?

I'd agree a case study is in order.

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[Dicey]

It seems you have checked out, which is too bad, but I'm going to reply for the sake of others who may read this.

I am your age* and no fucking way would I do this. I agree with Another Reader, you have undersaved. Don't compound your errors. You dug yourself into CC debt a little at a time, now dig yourself out the same way. You are seeking the easy way out of this and what you are proposing will cost you dearly in the long run.

* I am also FIRE, so my wallop carries more weight, IMHO.