Letter: Cashing Out a 401k

Dear Mr. Latimer,

I would value your opinion on the following. I currently have three separate 401k accounts (5K, 40K, and 8K). I have not rolled them into one account because I thought it would be safer to have them spread out. I have this idea that, despite penalties, it would be better to cash them in to apply to my mortgage to pay it down or get a smaller home and have no mortgage by using these funds. My reasoning is that we will have a crash similar to 2008 soon (7 year cycles). I feel that I would be better off having a secure home, than losing my money to unknown crooks. I am 58 years old. If you are unable to give your opinion, would you be able to direct me to a resource or article on Survival Blog.

Sincerely, C.P.

HJL Replies: First, I am not a financial advisor, and any information I give you is simply what I would do myself. It may or may not apply to you or your situation, and you may want to seek the help of a professional advisor. Four years ago, I retired from teaching and had the state retirement account. The state education board wanted me to keep it– investments managed similar to a 401k account– with them. At the time, I was transitioning to self employment, which I am sure played into our decision. I made the determination that it would be better to take the early withdrawal and either put the money towards the self employment (as an investment in my own business) or to invest it in PMs, which I could hold. Interestingly enough, we took half of the money and invested it in PMs, mainly silver, and within one year had recovered in value from the tax penalties. The other half was harder to track, but it was put towards the self employment in a job that would cross the boundary, should the SHTF. I can’t say whether that was a smart move or not, but we have not missed any bills, even with some serious hospital bills in the mix. I think it was worth it. I personally think that keeping your assets where you cannot control them yourself is playing a dangerous game, given the warning signs we see in our economy.

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