I am 63 years old. I have $250,000 in a 401k and $100,000 in other cash assets (bonds, savings accounts, cd's, individual stocks, etc). My pension is $100,000 per year and increases automatically by 3% each Jan.1. I have a daughter and son-in-law that I help out financially to the tune of about $10,000-$15,000 per year. I, therefore, need to tap my 401k's or other sources to maintain my lifestyle. I was thinking instead of taping my own resources, I would take out a home equity line of credit for 7 years until I have to withdraw from my 401k's. Would this be my best option?
2007-01-03 03:02:06 · 14 answers · asked by Michael S 2 in Business & Finance ➔ Personal Finance
IMO, you should stop supporting your daugher and son-in-law and take care of yourself first. Kudos to you for wanting to be a good parent, but why should you take out a loan that you have to pay interest on to support yourself when you do have assets that you're giving away.
Lines of credit interest fluctuate with the Fed interest rate so you might wind up paying way more than you expect to. Have you looked ito reverse mortgage for your home? That might be an option.
2007-01-03 03:09:11 · answer #1 · answered by parsonsel 6 · 2⤊ 1⤋
Although helping out your daughter and son-in-law is noble, I would strongly discourage it. Their money habits and their way of thinking has gotten them to the point where they are now. Supporting them is not acknowldging the problem and making the problem even bigger through entrenchment, lack of ambition, decrease in self worth, inability to fend for oneself etc
Money is a commodity. You have 100K in cash assets. If your return is lower than the interest you are being charged by the bank for the loan; then you may be your best bank. Why pay the bank 6% for borrowing 100K from the bank when the bank is paying 3% for borrowing 100K from you? A 3% loss does not translate well.
If you want to become your own bank, the challenge to overcome is the emtional aspect. Having large cash amount coupled with a loan looks better than a smaller cash amount with you as the bank. The latter in most cases is more prudent financially.
Another option to consider. Instead of borrowing money, buy an asset that will give you the return that you want e.g. commercial property with 15% to 20% cash on cash return. Use the cash return to pay for your lifestyle. The asset keeps paying for the rest of your life and can be easily passed onto your heirs (provided the corporate structure is structured in a way to support this approach). It also gets better, as time moves the cash on cash return increases year over year.
2007-01-03 03:37:14 · answer #2 · answered by KR 2 · 1⤊ 1⤋
If the interest rate is low and the payment is reasonable, then I say go for the home equity line of credit. If there are other loan options that have better rates then go for that option. Also, you should try to find out the penalty for taking a loan from your 401k. This also may be a good bet because you will only be paying back yourself in the end. If you can afford to take a loan from yourself (401k), then go for it!! Good Luck!! (I'm a MBA finance major)
2007-01-03 03:07:50 · answer #3 · answered by Jfranc1 3 · 1⤊ 1⤋
Now that you are retired, you can transfer your 401k into an IRA. You will have more options in an IRA. Their are funds you can invest in that pay a consistent return, 10% to 12% per year. With a solid return like that you can make enough to help out your children.
You are in a very important period of your life. It is important that you don't spend too much money so that you will have enough to last your entire retirement. If you explain this to your children they should understand.
2007-01-03 05:25:43 · answer #4 · answered by MR MONEY 3 · 1⤊ 0⤋
As long as the intrest rate on the loan is less than the intrest you are making on your 401k. If you get $100,000 a year in pension why do you need to tap into your other resourses?
2007-01-03 03:08:56 · answer #5 · answered by Anonymous · 1⤊ 0⤋
Stop helping and time to go on a dream holiday. First Australia then korea then China then france or europe england britain . But don't forget to tell them to get a job because your cutting out and you won't be there for them like some day you be here at all then they will have all your money to blow and still have to get a job because your not around to spoon feed them and put on there bib before they clean there diapers. Got the picture or is my lack of capitals and spelling errors is making this to difficult for you to read. Go and have fun you worked hard all your life for what you have and stop spoiling them.
2007-01-03 11:43:19 · answer #6 · answered by Anonymous · 0⤊ 0⤋
You should only take out the loan if you can make more money off your other investments than it costs you to have the loan. I assume you want to maintain some kind of nice lifestyle, but seriously, can't you get by on 50-60k per year?
2007-01-03 03:29:23 · answer #7 · answered by Phoenix, Wise Guru 7 · 1⤊ 0⤋
If you are 63, you may want to consider a reverse mortgage. basically, the bank pays you a certyain amount of money each month until your equity is completly depleted. You may want to wait until you are 70 before you try that though. Until then, I would recommend continuing to help out your daughter due to the fact that you can give up to $10,000/yr as a gift (tax free) and that is a certain amount of your estate that won't be taxed when you die,
2007-01-03 05:13:55 · answer #8 · answered by Blicka 4 · 0⤊ 2⤋
You should stop "helping" you daughter. Actually you aren't helping. You are empowering her failure to handle her money. Leave your 401 alone. Adjust your lifestyle to live within your means. Maybe that will help your child learn how. You should not compromise your life style to support hers.
2007-01-03 07:52:48 · answer #9 · answered by sm4125 3 · 1⤊ 0⤋
No.
Top 5 Answerer.
2007-01-03 20:22:19 · answer #10 · answered by Anonymous · 0⤊ 1⤋