The wisdom of financial planning often clashes with the messy reality of life, and for one couple in their early 50s, a strong retirement nest egg and a valuable home aren't enough to quell the severe anxiety of living paycheck to paycheck.
A recent Reddit post sparked a wide-ranging discussion about what it means to be financially secure. The author — a mother in her early 50s who left a full-time career to care for two children, one with special needs — describes a stressful financial paradox.
The family is asset-rich, with more than $1.5 million in 401(k) accounts and a $550,000 home. But they are severely cash poor and struggling to make ends meet each month, even with budget cuts, and have accumulated $15,000 in credit card debt.
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The financial pressure recently forced the couple to make a tough decision. Facing home repair expenses that couldn't be deferred, they took an early withdrawal from a retirement account.
"I know that's considered a cardinal sin," the woman wrote. "But we did it.
Two family experiences also are influencing the women's mindset. First, her mother died at age 64 without getting to enjoy her "significant retirement savings."
Second, her 81-year-old father, who has over $5 million in retirement funds, is frugal and shows "no interest in using" the money. He funds his grandchildren's education but doesn't provide cash gifts. The woman is an only child and his sole beneficiary and executor.
The combination of her mother's inability to enjoy her savings, her father's untouched wealth and the family's day-to-day struggle, culminated in a question for the Reddit community: "But more and more, I find myself wondering why the hell are we stressing?"
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Suggestions ranged from stopping contributions to the retirement account until debts and home maintenance costs are paid off to asking her father to gift her the IRS tax limit.
"He can gift you and your spouse up to $19k a year ($38k total). That $5 Million won't do you much good in 10 years," one Reddit user wrote.
Others were less sympathetic. One poster said they and their partner are the same age, making a little less than the original poster, have less in retirement savings but more children — and no one is contributing to their kids' education.
"Yet we aren't accumulating [credit card] debt. We're also not on here crying. We just cut the expenses need to be cut and make it work. I guarantee you they are wasting money right and left," they wrote.
Financial experts advise against taking early withdrawals from retirement accounts like a 401(k) or Traditional IRA because of the penalties involved. Withdrawing funds before age 59½ typically triggers being taxed at your ordinary income tax rate as well as a 10% IRS early withdrawal penalty, according to the IRS.
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Cutting expenses and sticking to a budget is a common theme throughout the thread, with one user writing, "…you have 1.5M. Just take out what you need, pay off all debt, then re-balance your budget so you don't go into CC debt again."
Another noted that people in poverty often believe that credit card debt is just part of life, while the upper-middle class know that it's not and the only acceptable debt is a mortgage, car and education.
"Otherwise, pay off the CC every single month in entirety," the poster wrote, start keeping a budget. A Google spreadsheet will do, or there are so many out there, so take your pick. Record every dollar spent and every dollar in."
Image: Shutterstock
