A Florida couple hoping to buy their first home got some advice from a lender that immediately raised red flags for them: cash out their retirement accounts to fund the down payment.
That concern prompted Dan from Fort Myers to call into “The Ramsey Show,” where hosts George Kamel and Jade Warshaw strongly pushed back on the idea.
Warning Against Raiding Retirement Savings
Dan explained that he and his wife were considering cashing out about $36,000 from their retirement accounts after their lender suggested it. The couple earns about $140,000 a year but is also carrying roughly $30,000 in credit card debt and a $20,000 car loan.
“You do know that this is a horrible idea,” Warshaw said when she heard about Dan’s dilemma.
Don’t Miss:
- Explore whether your retirement strategy is optimized for income, taxes, and long-term withdrawals — take the AdviserMatch quiz today.
- Blue-Chip Art Has Outperformed the S&P 500 for Decades — Here’s How to Invest
Kamel then explained why he believed the decision carried much bigger consequences than simply withdrawing $36,000.
“Just 36 grand, letting it ride from 30 to 65,” Kamel said, “that would turn into $1.2 million. So this is not a $36,000 decision. It’s a $1.2 million decision.”
Kamel also pointed out that the couple would likely face taxes and penalties for withdrawing retirement money early.
Dan attempted to play devil’s advocate, saying his wife’s retirement account had grown quickly in just a few years because of employer matching contributions. However, Kamel said rebuilding the account later still wouldn’t replace the long-term compound growth lost by pulling the original money out.
Trending: Turn your trading skills into real income — without risking your own capital: Get funded by Apex Trader Funding and keep up to 90% of the profits.
Debt And Cash Flow Were Bigger Concerns
While the retirement issue grabbed attention, Warshaw said the larger problem was that the couple wasn’t financially prepared for homeownership.
The couple currently rents outside the city and faces a long commute. Dan said moving closer to work and daycare would raise their rent to about $3,500 a month, which was also close to the expected mortgage payment.
Warshaw said that payment was too high for their income.
“If you’re bringing home $9,000 a month, doing a $3,500 mortgage is not good for you,” she said. “That’s way too high for you.”
She also warned that buying a home while carrying large amounts of consumer debt could quickly create more financial stress.
“Home ownership is expensive,” Warshaw said. “The roof is going to happen. The AC is going to happen.”
See Also: What If Your Investment Income Didn’t Rely Entirely on Market Swings? Some Investors Are Taking a Different Approach
One detail that especially concerned the hosts was Dan admitting the couple’s $30,000 credit card balance had been sitting there for years at roughly 25% interest.
“That’s even scarier,” Kamel responded.
The hosts ultimately advised the couple to delay buying a home, pay off their debt, build a fully funded emergency fund and then begin saving for a down payment.
Warshaw estimated the couple likely needed an “$80,000 swing” financially before they were …
This post was originally published here
