Dear Liz: I’m 59 and unemployed. My husband, who is turning 65 in July, recently lost his job as well. We’ve saved about $12,000 for emergencies and have a couple of 401(k) accounts totaling about $110,000. My husband receives about $1,800 a month from Social Security and a pension. We’re not too hopeful about finding jobs at our ages and in our area.
Should we begin drawing on the 401(k)s for income to pay our bills after the savings run out, or should we seek credit counseling to reduce our consumer debt? I’m scared of what our future holds and worried about losing my insurance coverage through COBRA after the subsidy runs out.
Answer: You didn’t say how much consumer debt you have or what your monthly expenses are, but the fact that you’re thinking of tapping your relatively small retirement stash indicates you’re probably in deep trouble.
A debt management plan through credit counseling will work only if you have the extra income to pay off your credit cards over the next five years. If you don’t, bankruptcy may be the better option. Even if you think credit counseling will help, consult a bankruptcy attorney so you understand all your options.
In fact, you should talk to a bankruptcy attorney any time you’re considering tapping a retirement fund early to pay off debt. Retirement funds are typically protected in Bankruptcy Court, while most unsecured debt can be wiped out.
And you don’t have that big a nest egg, anyway. At your age, you can draw only $3,000 to $4,000 a year from your retirement funds without dramatically increasing the risk of running out of money before you run out of years.
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