Left to grow, a retirement account can enhance your future.
- Raiding a retirement account can be a risky move.
- There are few financial tools as powerful as compound interest.
If you’re buying a home and are worried that you don’t have enough money to use as a down payment or to compete with other home buyers, you may wonder if you should raid your retirement account to grab the extra cash.
The answer is almost always no. Here’s why.
It’s a “today” problem
The current sizzling-hot housing market is temporary. We don’t know when it will cool off, but economics has taught us that what goes up tends to come down. Either it slows as the Federal Reserve continues to raise interest rates or it softens as more homes hit the market. It stands to reason that housing prices will normalize at some point.
Raiding your future to take care of a problem you’re experiencing today can be a costly mistake.
Years ago, I interviewed a loan officer in Northern California. This lender told me that he frequently advises people to empty their IRAs, 401ks, and other retirement accounts to purchase California real estate. When I asked how he could make such a suggestion, he said, “Real estate values in California will always increase in value.”
If you’ve bought into the notion that buying a house provides you with an asset guaranteed to increase in value, I ask you to consider a few “what ifs.”
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What if a natural disaster hits your neighborhood and some of your neighbors are unable to rebuild? What happens to the value of your home when the area is a mess?
What if someone down the street begins making drugs in their basement, the media report their arrest, and your neighborhood is suddenly considered unsafe?
What if the school district you’re located in loses accreditation …….