Here’s a harsh reality: Draining your retirement savings too quickly could leave you financially stranded in your golden years. It’s a mistake many retirees fear, and for good reason. But what happens when life throws you a curveball, like unexpected home repairs costing tens of thousands of dollars? Do you dip into your nest egg, take out a loan, or is there a better way? This is where things get tricky.
Dear Liz: We meticulously planned for our retirement to last well into our 80s. But now, these sudden house repairs have us questioning everything. Should we withdraw from our retirement savings, accepting the 22% tax hit, or opt for a home equity loan? Or is there a third path we’re missing?
Here’s the dilemma: Spending your retirement savings means losing the potential for future growth—money that could have been working for you is gone. And this is the part most people miss: While loans avoid depleting your savings, they come with interest payments that can quietly erode your budget, forcing you to spend down your retirement funds faster than planned. So, which is the lesser evil?
The answer isn’t one-size-fits-all. It depends on your unique financial situation. Consulting a fee-only financial advisor or accredited counselor can provide clarity. But here’s where it gets controversial: Some might argue that tapping into home equity through a reverse mortgage is a smart move, allowing you to access funds without immediate repayment. Others might suggest downsizing to a lower-maintenance home, like a condo or retirement community. Both options have pros and cons, and what works for one person might not work for another.
Thought-provoking question: Is it better to preserve your retirement savings at all costs, or is there a point where leveraging your home equity becomes the wiser choice? Let’s discuss in the comments—I’d love to hear your thoughts.
Shifting gears: Let’s talk credit cards. Here’s a common misconception: Many believe closing high-interest credit cards will automatically hurt their credit score. But is that always true? Dear Liz: I’ve paid off my high-interest cards but am unsure whether to close them. I’ve heard closing accounts reduces available credit, which can lower my score. But I don’t want to risk using them again. What should I do?
The truth is: If you pay your balances in full each month, the interest rate on your cards becomes irrelevant. Closing multiple cards at once can negatively impact your credit score, which is why experts often advise keeping them open—even if it’s just for occasional small purchases. However, if you’re worried about overspending, closing them might be the safer choice. Alternatively, you could ask your issuer to switch you to a lower-interest card.
Controversial take: Is it better to prioritize credit score preservation, even if it means keeping tempting high-interest cards open? Or should financial discipline take precedence, regardless of the potential credit score impact? Share your perspective below.
Liz Weston, a Certified Financial Planner and personal finance columnist for NerdWallet, offers these insights. For more advice, visit her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or use the ‘Contact’ form at asklizweston.com. Let’s keep the conversation going—your financial future depends on it!
