Cash out retirement to save home?

[espo1357]

After our bk7 is discharged, we can keep our house by cashing out my retirement to bring our 1st mortgage current and settle our 2nd and 3rd to get the liens released (if the lenders will do it...they'll basically get nothing, otherwise). I have about 60K in Cal-STRS (which, if you've been watching the news, could be gone tomorrow! LOL). After 6 months of not working, I can cash it out with a HUGE penalty, but enough to ensure we keep our home. My thinking is that it would be a fair trade to lose the retirement if we were able to keep our home (currently worth 185K), and we would have about 40K equity in it if we settle the 2nd and 3rd and bring the 1st current.

My concern: How hard would it be to sell this house in say, 10-15 years, if we wanted to? It had a lot of work done to it before we bought it "as is," and there weren't permits, etc. on those things. We bought it before CA government tightened up all their rules/requirements which appear to be making it almost impossible to sell a home without virtually rebuilding it to current safety/building specs. If it is going to be close to impossible to sell the house in 10 years without dumping tens of thousands of dollars into it, we may do better to walk away now and use my retirement as a downpayment on a new home in three years or so (after the banks will lend again post bk/foreclosure).

Any thoughts on this? I know it's complicated, and I apologize!

'

Savings has to trump "saving a home" by a long shot, unless you have so much equity and can easily sell the home.

Some might disagree.

But, a home is just a place to live.

You can always rent if you have to.

Good luck.

[espo1357]

I know Dave Ramsey says to only cash out retirement to avoid a bankruptcy or foreclosure, but I say to NEVER do it because of the compound interest that you will lose. Plus, you are not certain that you will be able to settle with the other mortgages meaning that you could cash it out and then be right back in the same boat because they won't work with you. In my experience, the 2nd mortgage refused to work with us at all. I cannot imagine having to negotiate with 2-3 different mortgage companies. You are at the age where you need to protect your retirement viciously. Owning a home will not keep you from eating Alpo at 70, but a well-funded retirement left to compound interest might.

Hugs to you for being in this situation. Nobody deserves it.

(PS - here is a link to a calculator on compound interest and it's benefits that you can look at http://www.dinkytown.net/java/CompoundSavings.html )

Dave Ramsey is a hypocrite. He filed for BK himself years ago!

And now he tells people to cash out a 401k (where get accumulate severe tax penalties, etc) to avoid BK or Foreclosure?

Wow, the nuts on this guy.

Ramsey is a corporate shill, and I would not tust him as far as I could throw him (Ferris Bueller reference) Ed.

[Wantmypeace]

I think with anything, whether it is Dave Ramsey or the BKForum, you have to take every viewpoint into consideration, and then make your decisions based on how the wisdom fits into your situation. Dave Ramsey has a TON of good advice, and I agree with him on about 3/4 of what he teaches. There are a few things I disagree with, but most of it is sound advice.

On another note, having done something IN THE PAST that you now advise others NOT to do does not make you a hypocrite; it makes your advice more valuable because it's based on experience. Hypocrisy is about continuing to do what you preach against, not sharing the wisdom you've gained from your mistakes.

Live and learn, I suppose....

[espo1357]

I think with anything, whether it is Dave Ramsey or the BKForum, you have to take every viewpoint into consideration, and then make your decisions based on how the wisdom fits into your situation. Dave Ramsey has a TON of good advice, and I agree with him on about 3/4 of what he teaches. There are a few things I disagree with, but most of it is sound advice.

On another note, having done something IN THE PAST that you now advise others NOT to do does not make you a hypocrite; it makes your advice more valuable because it's based on experience. Hypocrisy is about continuing to do what you preach against, not sharing the wisdom you've gained from your mistakes.

Live and learn, I suppose....

that's fair, I guess.

I suggest the opposite of Ramsey, when I speak to others about their options, especially when it comes to Foreclosure or BK.

For example, do you realize how many people cashed out their 401k or other savings to save a home, only to lose the home later to an adjustable rate or other factors? So, there goes their home, and their savings, and now here comes the IRS after them as well. That is a mess. And that is what he suggests?

I don't know how many, but I know people were wiped out, and these are people who saved their entire lives, but got caught up in the shit.

Ramsey just irks me. As a Christian, I find him very judgemental, and question his advice often.

He also comes across more holy than thou.

[Wantmypeace]

I agree completely that judgmental and holier-than-thou are completely offensive. I've never actually heard him say or read that he advocates cashing out your 401k to avoid bk or foreclosure, BUT it doesn't sound too far off for him. I suspect that he wouldn't give that as blanket advice, but rather advise it in specific situations. Either way, it is horrible that many have given up everything to save their homes and then lost them, too. This is specifically why I asked the question. "Many advisors make victory sure," applies to finances as well as war (which sometimes feel like one and the same!)...

[tobee43]

You are all so right! Thank you for being completely open and saying what I need to hear instead of what is easy to say. I'm leaning very heavily toward living here as long as possible (free rent), and then renting something until we can buy again. I say leaning heavily instead of decided because I am not the only vote. However, I am quite persuasive.

My kids are 16, 14, and 12. And, you're right; they are incredibly strong and resilient. We don't give them enough credit.

Our house payment is 1162 and change, but taxes and insurance are included, so that probably makes up the difference. A rental wouldn't include the taxes, and we'd get renter's insurance, but when looking through rentals online and in the paper, a similar size house (1700 sf, 3br/2ba) seems to run around 1000 to 1500, depending on how many sirens we want to hear at night.

The thought of moving is INSANE, but I guess I can look at it as a great way to organize and clean out a lot of stuff. We aren't packrats at all, so it probably won't be as bad as it seems...

(sigh) I just planted a weeping cherry tree in the backyard last spring. Wonder if it will handle being transplanted???

the tree will be fine.....we actually had to rent a 26 foot truck to bring many trees with us although we donated many "rare" trees we had on our property.

just make certain you dig DEEP and make a nice root ball....wrap it in burlap if you can find some...if NOT...get a huge plastic pot of home depot and a bag of PEAT moss for the roots.......take your tree..

[tobee43]

Dave Ramsey is a hypocrite. He filed for BK himself years ago!

And now he tells people to cash out a 401k (where get accumulate severe tax penalties, etc) to avoid BK or Foreclosure?

Wow, the nuts on this guy.

Ramsey is a corporate shill, and I would not tust him as far as I could throw him (Ferris Bueller reference) Ed.

LOL!!!! wow...someone that agrees with me on this guy's views...

holly cow and a half!! i think so many just want advise so badly they can't see the trees though the forest...he's NOT the answer...at least for me personally! so swear by his approach, but i think it also depends on where you are in your life's path...maybe? because for me...no way!

[tobee43]

I think with anything, whether it is Dave Ramsey or the BKForum, you have to take every viewpoint into consideration, and then make your decisions based on how the wisdom fits into your situation. Dave Ramsey has a TON of good advice, and I agree with him on about 3/4 of what he teaches. There are a few things I disagree with, but most of it is sound advice.

On another note, having done something IN THE PAST that you now advise others NOT to do does not make you a hypocrite; it makes your advice more valuable because it's based on experience. Hypocrisy is about continuing to do what you preach against, not sharing the wisdom you've gained from your mistakes.

Live and learn, I suppose....

you got that...and you are doing the RIGHT thing by examining all ways to go with this...to say it's a learning experience is certainly an understandment...it's so difficult and stressful...i know..we had the same decision to make...but we were really dumb and used our 401 just to keep afloat and lost the house anyway......i'm educated ...well thinking.....and still did it!!!!!

you have it correct...each persons situation is difficult and one must do what is BEST for them and theirs...only.....weigh the options and you will be fine.. i know it!

[espo1357]

LOL!!!! wow...someone that agrees with me on this guy's views...

holly cow and a half!! i think so many just want advise so badly they can't see the trees though the forest...he's NOT the answer...at least for me personally! so swear by his approach, but i think it also depends on where you are in your life's path...maybe? because for me...no way!

I had no idea you had similiar ideas about DR! Maybe I was a bit harsh on the guy, but he seems to think that money grows on trees, and that is a dangerous position. It is very tough out there for people. Take a drive (only if you are street smart, I don't recommend this for the average joe) to the worst sections in your city, and you will see it. I live in a major city, and I will drive through the rough sections just to see what is up (maybe that is stupid, but I am a strong dude and I carry heat), and I will tell you, it is a very sad state of affairs. People can barely afford food! And this guy, in his cozy studio is telling people with no education, no hope, to go out and follow his "baby steps" to prosperity. How silly. How rude. How insincere. He is a corporate shill in my opinion.

Tell you what. In many ways, this BK and house diaster was the best thing that ever happened to me, because it taught me to wake up to the con that is played by the banks and power brokers in this county. They use the media and other sophisticated tricks to fool people into thinking that they need something to be accepted or that they are lacking something in their life because they don't drive the best car, or have the best house or whatever. It is always a self improvement plan that the world wants you to go on. Not me. No more. If I lose the home (a home that I can afford because I am very frugal), then it is fine with me. I can move on, and save money living in a place that will set up my future.

People, wake up. Don't believe these lies! Cut down on crap, save that money for a rainy day, because it is coming. I can tell you this because I was rejected for about 20 jobs in the last 3 years, despite an advanced degree, and over 10 years of very productive experience! In other words, it is smart to be pessimistic when dealing with this world, but have lots of faith and confidence that things will work out in the end because the Creator does care...and whatever you do, keep good company. Life is hard enough. If you let jerks in, you will complicate things to no end.

Keep up the good work tobee43. I look forward to your posts, and I see the passion in your writing.

This forum is a life changer, because the forum deals with real issues, and real pain that people are going through, and I am very thankful to have found it. And I hope that I can contribute to this forum for many years as well!