Unless you’re independently wealthy, when you’re out of work money gets tight. And you start to think a lot about money … and where to get it. Do you borrow from a friend or family? Keep using your credit cards until they max out? Find extra work? Or do you use your IRA money.
Sometimes you need to turn to all those sources. And they all have drawbacks or, in the case of part-time work, not always easy to make happen right away. But if it reaches the point where your IRA (retirement) money is the only spare cash you can find, here are some things to think about.
Reasons NOT to use your IRA money
Since this is the advice of most money professionals, here are the main reasons to avoid dipping into your IRA funds:
(1) Retirement can go on for a long time and be more expensive than you ever imagined. Though tempting, when you use your retirement money you are solving a problem today and perhaps creating a bigger one down the road when maybe you’ll have even less options — and need more money.
(2) Money if invested well gains value over time. A simple CD at 3% can turn $20,000 today into $36,000 in 20 years with simple compounding (interest you earn also earns interest year after year). So the money you take out of your IRA now is worth a lot more in the future than you realize.
(3) Inflation eats your money and creates larger rents, food bills, medical bills, etc. than you probably are figuring on when you finally do retire. Your IRA investments staying untouched and gaining value over time will provide you with a much more comfortable life than retirement money that’s been used throughout the years — even if for what feels like a good cause.
When is it ok to use your IRA money?
Look. I know that sometimes life makes it hard to do the right” thing. And sometimes it is the right thing to use your retirement money. But please think hard before tapping into the money that is there to provide safety down the road.
Instead you can try to cut your budget as much as you can. Stay with a friend or family to save on rent. Give up “must haves” that you really don’t HAVE to have. Take a job that will provide cash flow — even if it feels beneath you. Eating is not beneath you.
You can find tips here to help with your job search and resume if you have to take a detour. And if your job search is already hitting blank walls besides what a “low level” job might do to it … use this as a wake-up call to change things up and really work the networking. You can find tips for all that here too!
Do whatever you can not to touch your retirement funds … but if all else fails they can offer a life raft to keep you afloat. Just please take as little as you can. And when you’re working again add back what you took in addition to continuing to contribute to your IRAs if at all possible.
And if you do need to borrow this might help:
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