Ask Chuck: Should we use our retirement funds to get through a tight spot?

Dear Chuck,

My husband’s sales job has not produced good income since the pandemic. We’re in our early 60s, have $10,000 in a savings account, $25,000 in our 401(k), a paid-off home, and no debt. We’ve considered downsizing. Do you advise drawing down on our 401(k) now? 

Managing Cash Flow 

Dear Managing Cash Flow, 

Unfortunately, for many who are in sales positions, lingering effects of the pandemic have caused inventory challenges, a decrease in demand, or a slowdown in normal sales volumes in some industries. However, I think you have better options than turning to your retirement savings right now. 

Rejoice in the fact that you are debt-free and in no immediate need of the money. If you can cut expenses and pick up some extra income, you may not need to draw down from your 401(k) at this point. If you have no other option, do not feel guilty about possibly borrowing some money to get you through a tough time. Do some deeper analysis with your husband on what I’ve suggested below, and then, consider my recommendations together. 

Analyze your overall picture

The fact that you have no debt and no mortgage gives you better options than depleting your retirement funds. How much income do you need per month to fill in the cash-flow gaps? This is the most important number to guide you in determining your best option. 

Do you know what your home is really worth in today’s market? Seriously evaluate all available housing options: staying where you are, selling, buying something smaller, renting, or moving into a tiny house, an RV, or even a friend’s temporary guest house. Decide whether renting or buying is the best choice for you. Can you rent out your home for more than you could rent something else? Is it in an area that could produce Airbnb or VRBO income for you? Think creatively because a temporary move may be necessary until your husband regains stable income. More importantly, will downsizing relieve you of your income shortages long term? If not, don’t be too quick to downsize, as it is expensive to relocate. 

How long does your husband plan to work? Have you or your husband considered temporary part-time work as a way to bridge the gap until his industry recovers? Do you have any other means of income? Have you looked for different jobs where his skills may generate more income? 

When do you plan to start drawing Social Security benefits? What will your income/overhead look like when you get to that point? Since retirement is not too far away, it is better to think about building your 401(k) than shrinking it. 

The rules for 401(k) withdrawals depend on the kind of account and where it is. Is it with a current employer or previous employer? You may be able to withdraw from your 401(k) based on your age, but you also may have to pay income tax on it. Check with your plan administrator. See if there’s an “in-service” withdrawal. Also, consider a 401(k) loan. See details here.

Alternative stop-gap recommendations

• Temporarily stop any 401(k) contributions to free up additional cash and build emergency savings.
• Freeze all unnecessary spending.
• Sell unneeded items.
• Consider a small home-equity loan or cash-out refinance if you have an emergency. This is my least favorite option, but I think you need to be building your 401(k) reserves for as long as you can. 

Invite the Lord to help

I know this is a stressful time for you, and it can feel very daunting to be short of funds for day-to-day expenses. Don’t panic; rather, see this as an opportunity to experience greater trust in the Lord’s faithfulness to show you which way He wants you and your husband to go. My wife and I have been through similar challenges a few times in our married life! 

Pray with your husband every day, asking the Lord to show you His way forward. Be honest, transparent, and open to do whatever He may lead you to do. Ask a group of close friends to pray with you and for you. Remember God’s promises: “Again I say to you, if two of you agree on earth about anything they ask, it will be done for them by my Father in Heaven. For where two or three are gathered in my name, there am I among them” (Matthew 18:19–20 ESV).

Humbling ourselves before the Lord in the company of trusted friends opens the door for Him to do more than we can dream or imagine. We’ve seen it happen over and over. I am confident that this challenge will pass, and you will be in much better shape as you analyze your options, unite with your husband, and seek the Lord’s path forward. 

You may be interested in some of our recent Crown Stewardship Podcasts; you will find much wise advice on managing resources for God’s glory. Thank you for writing. Keep us posted!