Downsides of Using Retirement Funds to Pay Bills

When people fall upon hard times, many individuals, particularly those who have put in a number of years in the work force, are tempted to use money that had been set aside for retirement to pay off their debts and get out from under the pressures of creditors. While it seems like a decent idea to sacrifice the retirement savings in order to be debt free instantly, this is rarely a good idea.

One of the biggest problems with tapping retirement funds to pay for bills and expenses at the present time is that the funds won’t be there in the future. While it may be easy to draw on those funds, it was very hard work getting them there. Re-saving the same amount that is withdrawn can take years and might never be fully accomplished. In addition to the savings that are removed from the account, the interest on that principle is lost as well. While the funds can be replaced, it is much more difficult to replace the interest.

Some argue that their only alternatives are declaring bankruptcy or using retirement funds. Part of their argument is that their retirement funds will be taken away in bankruptcy anyway, so why not use them and avoid bankruptcy? The problem here is that the vast majority of retirement funds are exempt from bankruptcy. They cannot be taken away from a person until they hit a certain threshold.

The threshold amount is very difficult to reach on one’s own. Even if the amount is reached, it is usually because a company or employer has contributed to the retirement plan. The funds that are contributed by a company are also exempt from bankruptcy so the funds are still safe.

Contact a Boston Bankruptcy Lawyer

If you are considering using your retirement funds for escaping creditors and would like to learn about the alternatives, contact the Boston bankruptcy lawyers of Joshua Spirn & Associates at 1-800-975-5346.