Question on Wifes Retirement Plan and Other Issues

[ctcsoft]

So my wife and I are arguing over something silly.

She is a teacher in Illinois and got this "Estimate" in the mail saying what she will get when she retires at age 62.

It says 43k/yr, 3,600/Month.

But it says based on projected retirement date!!!

** The Problem here is **

Were moving out of state and she is going to teach elsewhere for the rest of her career. So I'm telling here the estimate is NOT valid or accurate and she will not receive $3,600/mo. Maybe she will but NOT based on her 7 yrs of teaching in Illinois.

In 7yrs in Illinois she has around 30k in her retirement account. Illinois contributes only 8% of your annual salary whereas the state were moving to contributes 20% of your annual salary towards your retirement.

Our plan and goal was to cash out our retirements ( yes I know this is stupid but listen ). If we cashed our retirements out plus our savings, we could pay off a high interest loan on a vehicle ( only vehicle we owe $$ on ), then we could save the rest for a down payment on a house. Right now our number one expense is RENT. We have 2 young kids not in school yet.

Were in our early 30's and have plenty of time to recover our retirement accounts. Especially since the new state she is teaching in will be paying more ( The 20% of annual salary ).

I also have some inheritance coming in the next few years and though about re-investing that into some retirement accounts. Would like to start a roth IRA and possibly a college 529 plan for my kids.


Any advice? I know some people here probably have degrees in business/finance.

 

[ctcsoft]

should note if it matters : we only owe $900 on credit cards. 1 single card.

 

[FallenHero]

Is this her pension plan? if so, I highly doubt she is vested after only 7 years. Cashing it out would be the only wise thing to do, otherwise the money basically just sits. Also, you would only get out what you put in. I would have her talk to her local pension expert in her union and see what her options are.

If its 457, disregard.

 

[herm0016]

You want to pay off a loan that is probably around 10% by taking a close to 40% hit in taxes on your retirement money? you will loose much more than you will gain.

Don't do it. Just reduce your contributions and save money/pay extra on your loan.

 

[ctcsoft]

You want to pay off a loan that is probably around 10% by taking a close to 40% hit in taxes on your retirement money? you will loose much more than you will gain.

Don't do it. Just reduce your contributions and save money/pay extra on your loan.

not just to pay off loan. that is only 1 small reason but reason enough. The loan is new and high interest. The van will end up costing me DOUBLE if I don't pay it off early.

My main reason I want us BOTH to cash out retirements now is to have a little cushion money for emergencies and to be able to buy a house soon.

Our #1 main expense is rent and its just tossing money down the drain.

 

[ctcsoft]

Also here is my theory...

If we could pay off the predator auto loan, and then pay a savings acct every month instead of making an auto payment, then we could buy vehicles for CASH when needed and not even have to worry about financing and interest rates.

 

[herm0016]

still loosing 40%. what is your combined income and what is the value of the car, how far upside down?

 

[ctcsoft]

van is a 2009 grand caravan.

had it for 2 yrs already.

after final payment we would pay $32k for it!! Van only cost 16k. Its beside me not to pay it off EARLY!

 

[ctcsoft]

still loosing 40%. what is your combined income and what is the value of the car, how far upside down?

Is it 40% or 35%? Somewhere around there but yeah I know its a big hit.

But how much am I going to lose if I don't get my credit good and get my vehicles paid off and have the ability to get better interest rates and a good size down payment on a house??

The last thing I want is more high interest loans. Either for a car or for a house.

 

[Fern]

Have her talk with a rep from the retirement plan about her options etc.

Although premature since I don't know what type of plan it is, I suggest you not do it if only based upon my expectation that you will pay a fed tax penalty for premature withdrawal.

Re: Cushion for emergencies, many plans, and tax law, allow for exemptions from the early withdrawal penalty for various financial hardships. I.e., by leaving it in it may still be a cushion.

But still, the best starting place is a discussion with an account rep from the plan administrator.

Fern

 

[Elbryn]

the wife's retirement annuity payout is taking in another 20 some years of contributions with pay raises and some percentage annual gain assumptions. by leaving, she definately is not getting what that paper says.

25 years of 7% annual interest on your 30k is worth 152k. you're considering dumping it at whatever income rate + 10% penalty, possibly taking you into a higher marginal tax bracket to pay off a bad car loan and save for a house downpayment is not the best of ideas.

you say you'll pay an extra 16k in interest on your van.. by cashing out, you're losing out on an estimated 122k worth of growth. still sound like a good idea?

it's a myth that you have plenty of time to repair retirement accounts. retirement accounts operate on compound interest. you lose that by starting over and will have to contribute more yearly to catch up and get back on track. you could be talking about exchanging a normal retirement at age 65 for working until 70. just as an example.

buying a home generally means higher expenses per month.. not less. house value is also not a guarentee to appreciate. you also pay taxes, upkeep, and insurance on the home. not to mention you have to fix stuff. definately a nice thing to have but your finances dont appear to be on par for that right now.

rent isnt tossing money down the drain, you have to live somewhere. that counts for alot

my suggestion is to review the budget, throw out a fair number of the excess type things, keeping a few of the valued ones but find at least a few hundred dollars a month you can cut out. use that money to pay off the debts early then save it for an oh shit fund and future car payments. it's gonna be a pain but cashing out your retirement money is going to be shifting that pain with some interest down the road. a house doesnt seem to be in the short term future. or you can find one that needs a lot of work that you can grow into slowly. plenty of bargains to be found nowadays.

i'd roll your retirement accounts over to a traditional ira at fidelity, vanguard, etc.. unless you happen to think the illinois pension fund is a good place to be.

 

[CPA]

How about sell the van and getting a beater.

 

[herm0016]

elbryn, great explanation.

 

[Dr. Detroit]

How about sell the van and getting a beater.

Based on his insane interest rate - I'm guessing they are severely underwater on the van.

Can you refi the van at a credit-union?

Taking the hit on taxes to pay off the van sounds like a bad idea.

 

[lupi]

finding a new loan to help unfuk yourself with the van sounds really good, about everything else sounds real bad.

 

[the DRIZZLE]

OP this is a fairly complex financial decision and I encourage you to think it through further and do some more research. Aside from the tax penalties discussed by others you could be taking a big loss on the account value itself if this a defined benefit plan. As others have said you see what your refinancing options are for the auto loan before you do anything drastic.