The State of New York is Borrowing from It’s Retirement. Should You?

Let’s face it.  Most people are really, really bad at saving money.  Despite seeing thousands of dollars go into their bank accounts each month, and millions over their working lifetimes, most people have a few hundred dollars in the bank if they’re lucky.  Most people spend every dollar they make and then borrow so they can spend even more.

One place people do save a little is in their retirement funds, probably because they can set things up to take money out of their paychecks before they see it.  In some cases, while the individuals don’t put money away, the company they work for may fund a retirement account.  Left alone, there can actually be tens of thousands of dollars in that account fairly quickly – over a period of five to ten years.  The balance will be ten million dollars or more at retirement age – more than enough to generate enough income to pay for expenses, travel, medical expenses, and other needs and wants.

That is why there are probably few phrases that send chills down my spine as much as “borrow from my retirement fund.”  Having not saved, when faced with a pseudo-need expense like college tuition or a new car or just a want like a vacation or a kitchen remodel, people are all too willing to tap into that one place where they have saved some money.  There are plenty of lenders who are only too happy to help individuals borrow from their retirement funds in exchange for a hefty fee.

Before you follow their lead, perhaps look at the company you keep.  In a recent editorial in the Wall Street Journal, it was discussed that the State of New York is looking to tap into its retirement funds.  Because the state has borrowed up to their limits and raised taxes to the point that they practically need to post the state guard on the borders to keep people from fleeing to the neighboring states, they are now looking at borrowing from the state pension funds to pay for new projects.

This might make the current politicians popular with the people of New York since they would be able to fund jobs rebuilding bridges and other infrastructure without raising taxes, but where is the money going to come from to pay the pensions of future retirees?  Certainly a twenty-year old bridge won’t make a good retirement asset.  Unfortunately the current group of legislators will be long gone by that point.

Don’t act like a bankrupt state.  If you can’t afford to pay cash for something, you either don’t need it or your priorities are all wrong.  Get your cash flow in order so you can pay for things as you go, rather than borrowing from your retirement.  Otherwise, you’ll be facing a long, cold retirement.  At that point, all of those things you borrowed the money for will be rusting hulks.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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