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Reasons to Borrow from Your 401(k)

While it’s generally a bad idea to dip into your retirement savings early, there are certain situations when borrowing from your 401(k) ahead of retirement makes sense — especially if you don’t anticipate any changes to your job situation, you’re still on track for retirement overall, and you have an urgent need for a one-time, lump-sum payment.

Hilltop CEO Erik Brenner recently spoke with WSBT-TV HomeTown Living co-host Craig Gibson on why why 401(k) loans don’t always spell trouble.

Some highlights from the segment:

With so many variables such as years in retirement, inflation, and market performance — and so little room for error — what’s a future retiree to do?

Maximize Social Security income by claiming benefits as late as possible — ideally waiting until age 70. That’s the age when recipients receive 132% of their total monthly benefits. Retirees are rewarded for delaying.

The easiest way to holdup claiming Social Security is to keep working — even if it means working just enough to cover living expenses. If you claim Social Security at age 70 versus 62, you gain a lot of extra savings.

While delaying Social Security can give future retirees some peace of mind on income, they must still pay close attention to expenses, particularly the cost of long-term care.

Many of us hold on to an idyllic vision of our golden years, imagining we’ll be in good health and living self-sufficiently in our own home. But that scenario is likely to get dashed.

On average, nearly 70% of 65-year-olds will eventually need some form of long-term care, according to the U.S. Department of Health & Human Services.

It might be worth looking into long-term care insurance, which reimburses policyholders a set amount to cover costs.

Another option is to convert a life insurance policy into a long-term care benefit plan. This means selling your life insurance policy to a company that will pay out between 30% and 60% of the full benefit when you need long-term care. And any funds you don’t end up using, go to a beneficiary of your choice.

But don’t put it off. The best time to start preparing for possible long-term care costs is while you’re in your mid-50s — because you’re still eligible. Unfortunately, people start worrying about it in their 60s and 70s and often are uninsurable

What if you’ve mapped out a 10-year-to-retirement plan — and you expect there’s a gap between your savings and what you need to retire comfortably. What steps can you take to save more?

If you’re behind on your savings, it may be tempting to ramp up your portfolio risk — to try to produce above-average returns. Unfortunately, while this strategy may be successful on occasion, it often delivers mixed results.

Investors taking a high-risk strategy can sometimes find themselves making the situation worse by committing to riskier assets at the wrong time.

Remember, money management is an area of expertise for relatively few individuals. 

Consulting a Fiduciary Advisor is always a wise course of action. A good wealth advisor ensures a retirement portfolio maintains a risk-appropriate asset allocation — and often, we provide advice on other issues as well, like estate planning.

Visit HilltopRetire.com or call (574) 475-7366 to sign up for a FREE complimentary retirement assessment.


Hilltop Wealth Solutions is a registered investment adviser. This is not intended to be relied upon as investment advice, nor an offer to solicit to buy or sell any securities.

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