Before You or Your Friends or Relatives Tap that 401k to Pay Bills, Push Pause for a Moment.
I’ve been wanting to address this subject for awhile now as I have seen firsthand what I believe were bad money moves made by a couple of friends the past 10 years. I know most of you reading this will likely have a fully funded emergency fund that could get you through a few months of hardship like an illness or job loss or natural disaster. The people reading blogs like this generally have their shit together (in matters of money, at least). Most of us have fully funded 401k’s and likely a Roth or two and even some after tax investments to free us from the golden handcuffs of full time employment at jobs that don’t really make the nut of satisfaction. This is more informational for anybody who might know somebody who runs into hard times (some folks have a knack for that) before they take the unnecessary steps I have witnessed.
Example one was a friend who lost his good paying job about 8 years ago. He has a wife and a couple of kids and a little house in the suburbs and rode out the unemployment train to it’s conclusion and still didn’t find a suitable replacement job. Pretty soon I’m seeing on social media that he was hitting up a retirement account for some medical bills and day to day living expenses as his spouse’s income was making ends meet. I’m not here to judge whether or not their lifestyle cost too much (I don’t think it did, not being spendy or showy types). I just wish he had realized they might not have NEEDED to tap a 401k or an IRA for these expenses. The Supreme Court ruled a few years back that those assets are protected from creditors as a type of trade off for the money being restricted until retirement age. There are restrictions (like if you owe the IRS) but they are largely bulletproof from being snatched up by “the man.” Now, I normally advocate for my one’s own business unless asked for advice but I wish I had known what he was going to do before he did it. I wouldn’t say bankruptcy is an easy answer but those laws exist for a reason and in my eyes this family might have had a good reason to consider it. Now they’re stuck trying to rebuild a nest egg they might have been able to save.
The second case is somebody we know who got sick and died. She always seemed pretty savvy about life in general but made a couple of similar moves. As half of a married couple there is somebody left behind to pick up the pieces of these moves. As a bonus, the beneficiaries were not up to date. I would say to anyone who has a friend or relative on the financial skids to encourage them to at least seek out some professional advice or do some of their own research to find out what assets are or are not protected. They might be nicely surprised and find it easier to recover from the hardship when the clouds part. Oh, and make sure your dammed beneficiaries are updated from time to time. It’s a crappy way to spend an afternoon but worth it knowing your hard earned gravy goes where you intend.
Bulletproof Portfolio Update
I started this little experiment with some stocks I owned and some from a dividend grower watch list a month ago. The stock market has been up and down like a whore’s drawers in the month since then but my portfolio is ahead of the S&P 500 but 1.15%. This is a long game and we’ll see where it goes from here.