It’s never a smart move to compromise your financial future for a quick fix today.
To that end, retirement guru Sharon Epperson warns against raiding your 401 (k) before retirement to pay off your credit card debt.
“It is just a Band-Aid for a wound that will likely keep bleeding,” said Epperson - a regular contributor on NBC’s Today who also does a weekly segment called “The New Retirement” on CNBC's Power Lunch - during a live Web chat Wednesday.
Epperson was answering a question that came from PL asking: “I owe $47,000 in credit card debt. Should I borrow from my 401 (k) to pay it back?”
Step away from your 401 (k), she advised. “You first need to start working with a non-profit credit counselor because the reasons why you racked up $47,000 in credit card debt may not have gone away,” she said. “Are you living beyond your means? Or did you have a huge unexpected expense? Or was it a combination of both? Find a counselor in your area at www.debtadvice.org.”
Here’s a sampling of some more of her questions.
“I have two daughters, ages 3 and 6. As of yet, I have not set up a college fund. Is a 529 the best thing I can do right now for them?”
“A 529 plan can be a great way to earmark savings for college for your two daughters. But let me ask about YOU first. Do YOU have a retirement savings plan? If you're married, does your spouse have one too? YOU need to make sure you are doing all that you can to maximize your own retirement savings FIRST. There is no scholarship for retirement.
“That said, if you are contributing as much as you can to workplace retirement plans and IRAs, I would open a 529 for your two daughters. You can open one for each of them or just one -- and then once you've paid for college for the first you can make your 2nd child the beneficiary.
"You'll find a wealth of information about college savings plans at www.savingforcollege.com.”
“My wife and I have $100,000 in a money market account. We are both two years away from retiring what would be a good investment choice we are very conservative, don't like risk?”
“John, you are right not to want to take too much risk with your retirement money. The only problem is money market rates are so low -- and are likely to remain low until the end of 2014. You have a few options. You could buy some CDs and "ladder" them -- allowing one to mature one year, then another the next year and so one. A CD may have slightly higher rate than money market account depending on its maturity. You can research rates at www.bankrate.com.
“Also check out the story I did on CNBC.com about ways to beat the ‘Retirement Yield Drought.’"
You can read the full retirement Q&A with Epperson here: