I was checking my twitter stream yesterday when I stumbled on an article by my girl Sandy titled “I Bought A Rental Home With My 401K“. If you’re too lazy to click-through and read the article the gist is Sandy took out a $40,000 401K loan to pay cash on a $38,000 investment property (I didn’t know places that cheap existed…haha). If you want more details you’ll have to read the article.
Contrary to what you might be thinking, I’m not actually here to discuss Sandy’s situation. Instead I thought we could focus on the bigger picture and talk about borrowing from retirement in general. Would you do it?
I’d be lying if I said the thought of pulling a little bit out of retirement hadn’t crossed my mind. I have a goal to reach $100,000 in savings before Girl Ninja and I buy a house. If I liquidated my Roth IRA (which I can do penalty free on my contributions) we’d be at that $100K threshold.
Maybe I’m stubborn, but when I put that money in to a retirement account, I put it in to a RETIREMENT account. Ya know, for when I retire. This is non-negotiable. Compound interest is a freakin’ miracle. The earlier I invest, the longer I have to let compound interest work to my favor. If I pulled all my money from my Roth IRA, or 401K, I’d lose out on five years of compound interest. The first five years. The most important five years. I ran the numbers, if I took $30,000 out of my Roth IRA today (and then resumed maxing out contributions until I was 65) I would lose $419,000 in earnings.
So yeah, an extra $30,000 would be sweet to have in the ol bank account. But an extra $419,000 in my retirement accounts sounds a heck of a lot better.
For this Ninja, my retirement accounts are a one-way relationship for the next 40 years. I’ll be putting money in, but wont be taking any out. How about you? Would you borrow from your retirement accounts for a house? A new kitchen? Facebook stock?