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Last week on the Mullooly Asset Management podcast, Tom and Brendan discussed the foundation of financial planning. This is a continuation of that discussion on saving money and your retirement plan. Tom and Brendan talked about taking loans from your 401k account at work in the last podcast. This week they talk about an alternative way that could be used to write off outstanding council debts or to pay down a personal debt.
In a scenario where a person has a debt to pay, but is also contributing to their 401k account at work; they are likely finding it difficult to make ends meet each month. Potentially a person could pay off their debt by NOT CONTRIBUTING to their retirement plan for a year or two. This would leave the extra money that would have been contributed to their 401k to quickly pay down the debt they owe. So instead of taking a loan from their retirement account and creating a five year re-paymen
t plan, the debt is paid off in a year or two. Keep in mind that this is RISKY, and most people in the financial planning industry would not recommend this.
The risk that is involved with not contributing to your retirement account to pay off debt is that you never start contributing again. Many people do not have the kind of discipline it takes to pay off the debt and begin stocking away money again. You have to know yourself, and feel confident that you are capable of contributing again.
Tom and Brendan also talk about another frequently asked question they receive about financial planning. Should I save for my retirement or my kid’s college education? Tom answers this question simply by explaining that you can ALWAYS borrow money for college, but you can NOT borrow money for retirement. Tom also explains why he is not a fan of prepaid college tuition, and makes note that there will be a future podcast that discusses saving for college. Topics covered on the college saving podcast will include Custodial accounts and 529 plans.
Mullooly Asset Management strongly urges our listeners and readers talk with their personal investment adviser before making any choice to buy or sell any investments. None of the securities mentioned in this podcast or blog post are considered investment advice. If you do not have an investment adviser please do not hesitate to contact Mullooly Asset Management through phone call or email.