Avoid the Double-Dip Minefield of Retirement Savings

In a recent survey from Allianz Life, 54% of adults have reduced or stopped their retirement savings. What’s more disturbing is that the research indicated that 43% are dipping into retirement savings to help pay bills and live a certain lifestyle. This can cause a ‘double-dip’ minefield for retirement savings.

First, the stock market is down 20% and is considered bear market territory. If you sell stocks to raise cash, you effectively take a double hit to your retirement account. My definition of the “cardinal sin” in stock market investing is to sell stocks when they are temporarily down.

The obvious cause is this continued inflation, resulting in rising prices on just about everything from gas, groceries, rent, insurance, and many other services. Variable interest rate loans, such as credit cards, home equity loans, and certain mortgage loans, have been especially hard hit. One area I am seeing is an increase in credit requests, especially credit cards. Just 24 months ago, it was relatively easy to get a new credit card. However, now it is getting increasingly difficult to qualify for credit. Home sales have also been significantly impacted, where rates have increased from the 3% range a year ago to nearly 8% today. Finally, the personal saving rate has dropped to 3.1%, the lowest rate in 14 years.

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What does all this mean for you as we head into the holiday spending season?

The slowly imploding housing market and significant layoffs in technology companies suggest a bumpy road ahead, including the real possibility of a recession next year. The Federal Reserve is not finished raising interest rates, so you can expect loans with a variable rate to continue to rise…along with your payments.

What should you do now?

Take a moment to assess your current financial situation:

  • Is your job secure?
  • Does your current cash flow allow you to pay all bills in full each month, including credit card bills?
  • Are all your loans ‘fixed-rate’? If no, review how much the payment has risen and will continue to rise as interest rates consistently increase.
  • Do you have adequate sources of emergency cash?
  • Develop a plan. If your answer is no to any of these questions, start planning how to address any problems you may come across.

If your job is at risk, be sure to update your resume and begin thinking about your best opportunities for alternative employment, including part-time work or gig jobs.

Look for ways to cut expenses and unnecessary spending. For example, I recently reviewed my (ever-increasing) satellite TV bill and was able to cut the monthly payment by $100.

Consider ways to raise cash. Do you have stuff you could sell? A boat? An old car or tech products? Could you have a garage sale?

Your worst solution to a cash flow crisis is to take money from retirement plans because you lose the momentum of tax-deferred growth. This may not seem like much now, but retirement plans are a huge benefit over time. In many cases, you could also owe a penalty for early withdrawals. A 10% federal penalty is imposed on most withdrawals for people under the age of 59½. You will also owe income taxes.

This financial situation may get worse before it gets better, but it will get better over time. Do what you need to do to get through this without invading retirement plan assets, and you will be rewarded (and glad) for your efforts.



Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of SuccessJ.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.


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