When it comes to retirement, we all have dreams. We all have thoughts about the days of when we no longer have to get up to go to our place of employment.  What do your retirement plans look like?  Whether our retirement dreams look like us continuing to work at a job we enjoy (but at our own pace), or if they consist of just lying on a beach in Tahiti, they all have one thing in common; the future.  But how do we get that dream future? How do we retire with dignity?  When should we start thinking about retirement?

Besides Social Security, there are other federal approved retirement plans that allow you to prepare for retirement and it would be wise to take advantage of them; some of the most commonly known plans are 401ks, 403bs, and IRAs.  401k and 403b plans are investment vehicles sponsored by your employer but are administered by investment firms such as Fidelity, Merrill Lynch, Prudential, etc.  Not all employers offer such plans, but when available, they should be used because they are excellent plans for building wealth and the preparing for retirement.

401ks, 403bs, and IRAs are savings and investment accounts, but they come with restrictions on withdrawing the money.  Why would the government put limitations on the access to YOUR money?  That’s easy, because YOU get tax benefits for taking advantage of these great plans. And if there are two certainties in your life, they are death and taxes.  These retirement accounts are NOT to be treated as “piggy banks’ for you to withdraw money whenever you feel like you need it.  The money is supposed to be for retirement; for example, below are three main reasons as to why taking money out of your 401k is a bad idea.

1.    First, it is extremely expensive in the short term. Typically, the administrator of your 401k is required to withhold 20% for the money you want to withdraw and send it to directly to the IRS for any taxes (federal and state) that are due on the money.  And to compound the issue, there is a 10% penalty for early withdrawals! That is money just lost. But it gets worse!!!

2.    Secondly, it is extremely expensive in the long term.  Money taken out of a person’s 401k misses out on the greatest passive wealth building phenomenon known to man; compound interest.

3.    Thirdly, taking money out of a retirement plan may actually create debt. Some retirement plans allow you to withdraw your funds but require you (by garnishing your paycheck) to pay the money back with interest. But we are trying to live debt free (remember the affirmation we say before offering time at every service!). And even though you are “paying yourself interest” you still end up losing the opportunity to do something more important with that money.

So, for example, if you are under 591/2 yrs old and pulled $5,000 from your retirement savings to give, after taxes and fees, your $5,000 is only $3,500!  And that $5,000 you removed from your account cannot gain compound interest which over 30 years, using a conservative interest rate of 7%, could have cost you over $57,500 at retirement when you need to money the most!  Is the $3,500 gift now worth more than your $57,500 sacrifice? Probably not! There usually is a better answer.

Will you have enough money to achieve your retirement dreams? When we reach retirement, we all want our lives to be good testimonies for God as we look back over our lives and say, “Look at how God has prospered me!”  But we hinder the work of God by being impetuous, impulsive, and impatient.  Putting away money to retire with dignity is not only a good idea, it’s a biblical idea.  So, let’s exercise some patience and only use the retirement savings if it is absolutely necessary.  And as we show discipline, God will reward our faithfulness in the fullness of time. God bless!

Please join us, starting April 1, for our next sessions of Financial Peace University (FPU).  Registration is now open in the MFM Bookstore.  The investment is only $100 total for your entire household.  See the entire schedule below.  If you are unable to attend a particular class, no worries, you will not miss out on any information. Ask us how.

Alfred King, Financial Consultant