I am two years away from retirement and I have no money saved. I am now also facing bankruptcy. How do I come back from all this?

I have a 401k currently with my job and as of 7/21/13 I have $266,000. I am 56. Should I get more aggressive or should I stay moderate?

Answers

  • 1 out of 1 person found this answer helpful

    CFP®, JD Scottsdale, AZ

    You present an interesting question based on the facts you present. In this day and age, it is rare for people to retire before age 65 due to health care costs but you are looking to retire at age 58.  I hope the early retirement stems from your choice rather than an external necessity such as job loss or medical condition. 

    Additionally, I'm going to read into your question a little further and make the assumption that all of your retirement savings is in the 401k plan.  While $266,000 is nothing to sneeze at, it is not sufficient on its own to cover your retirement needs.

    If I were in your shoes, I would resolve the debt issues first, second I would focus on retirement planning, and only then would I make decisions on the investments. At the risk of sounding self-serving, I'd suggest talking to a financial advisor and or attorney offline to get guidance on your specific situation.

    A couple of points to remember about 401k plans are that as an employer-sponsored qualified plan under ERISA, a qualified plan has a very high level of creditor protection and also that a 401k plan can sometimes be drawn on after age 55 without a 10% early withdrawal penalty and also without leaving your employer.

    I'll be interested to hear what the other advisors have to say.


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    La Jolla, CA

    You have saved.  That's the money in your 401K.  You were doing the right thing by contributing part of your paycheck to that 401K. However, as the other advisors have said, that is not enough on which to retire.

    If you could do it all over again, I know you would have saved more.  That's why I encourage young workers to max out on their 401K and start a Roth IRA.  

    Are you being pressured into mandatory early-retirement?  If so, I would seriously consider finding another job.  Many people are working well into their 70's because frankly, there is no other choice.  

    With regard to your bankruptcy, I hope your lawyer will be able to protect your 401K from creditors.  I'm not an expert on federal and state laws in this area.




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    CFP®, MBA, MSFS Irvine, CA

    Fortunately, your 401k is exempt from bankruptcy. So you are blessed in that regard.

    Do a budget. See how much you need to retire. Assess you social security income. What is the shortfall between your SS and your budget. This is what your 401k is going to have to support.

    Conservatively, you can take about 4% of your 401k annually. Is that going to be enough? If not, then evaluate your options. Can you work parttime? Can do you have any other sources of income (rent out a room in your house? if you have one.) Find a less expensive place to live.

    Define your problems. Define your assets. Then start finding ways to fill the gap. It is never hopeless unless you allow yourself to feel helpless.


    Blessings - hope this helps!!

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    CFP® Greensboro, NC

    1) Do not take assets from your 401k, corporate retirement plans are typically exempt from bankruptcy proceedings, and personal IRAs are protected to over $1million (http://seekingalpha.com/article/502201-ira-bankruptcy-protections).

    2) Unless you have a pension, then you do not have enough money to retire early at age 58, 4 years before social security starts.  If you are able, you should consider working until at least 62.

    3) If the reason for filing bankruptcy is a spending problem, then you'd be wise to correct that issue first before worrying about your retirement.  Draft a budget and stick to it because if you don't correct a spending problem then you'll be right back in this same mess a few years down the road, except you will be retired and going back to work may not be an option to get you back on your feet.

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    Advisors offer free consultations to determine if you're a good fit for one another. Providing more information in the consultation request will help advisors have a better sense of what you're looking for. The advisor will contact you via email and set up a time to meet. Depending on the advisor, and your preferences, this could be an in-person or online meeting. You are under no obligation to engage them after meeting with them.
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