Do not raid your retirement accounts

I caught a glimpse of the Today show the other morning.  They were featuring a ‘Money 911’ section with 3 financial experts – Jean Chatzky, David Bach and Carmen Wong Ulrich.  The 3 experts answered a variety of questions, mostly about mortgages.  Ann Curry, the host of the show, mentioned one question that never got answered, so I thought I would take this opportunity to answer that question, in case anyone else was watching and needed the answer.

A viewer asked, “Should I use my 401k to pay down my mortgage?”  The answer, “Absolutely not.”

It’s great to want to pay down your mortgage early, but emptying out your retirement accounts is not the way to do it. There are options for refinancing your mortgage that may help you to pay it off more quickly, but you can’t really take out a loan to fund your retirement.  So keep your retirement accounts as they are and keep working to build them up. Invest in your future.  At the same time, work to pay down your mortgage by reducing your spending and putting more towards your mortgage each month.

You can also implement a debt roll-down plan to help you eliminate your consumer debt more quickly. Once you have eliminated your consumer debt using this principle (rollover the payment from the first debt into the payment of the second debt, once the first debt is paid off, and so on), you can roll those payments over into your mortgage payment.  This will take years off your mortgage payoff time!

Once you pay off your mortgage, roll the amount you were paying into a monthly contribution toward your retirement account or accounts so that you are continuing to provide for your future.