When Is It A Good Idea To Borrow From Your Retirement Account?

For most people working in a decent industry or profession, a retirement plan comes as part of the package. Through such a plan, one can at least hope that when they stop working and don’t have a steady income stream, this fund will help cushion that blow. It is usually possible to take out a loan on this retirement fund. Though highly discouraged, there are some instances where taking out a retirement loan actually makes sense, and even be beneficial.

For starters, in a situation where an emergency arises and you have absolutely no other place or institution to turn to, your retirement funds can be a way out. It should be noted that this is specifically for desperate situations, for instance, when your lights, heating and so on are actually being turned off, or otherwise facing something such as eviction.

When borrowing from a retirement fund, it is often the case that the interest rate is quite low. So for individuals who, maybe due to a bad credit history, find it difficult to access low cost finance, this may be a good idea. The balance that is then required is to assess the difference between the gain due to low interest rates versus the lost retirement capital that will need to be paid back.

There are many professions in which job security is quite high. If you are in industry where you skills are scarce and the labor market is not particularly saturated it may not be so detrimental to take out a lon on your retirement account. The reason for this is once you leave your job, you are required to pay the loan in full over a short period of time. As such the more secure you are in your job, the better it will be in terms of repaying the requisite installments.

In investment circles people talk of good and bad credit. If you are borrowing in order to make an investment that has a high level of return then that is a great idea. Starting a business or educating oneself are all activities that fall under this category. With fortune and hard work, it may be possible to pay off the loan from the proceeds of your investment.

Whatever the reason for taking out the loan, it is important to be smart and have a watertight repayment plan.

 

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