With a pinch of luck and a little planning, retirement is something most people look forward to after a long journey. There are many different ways to plan for that retirement, and saving money in a 401k type plan is certain one of the more popular ones. When that money becomes a tempting piece of fruit on the tree before retirement, is it worth picking?
Making the choice to withdraw funds from a retirement account has its benefits and disadvantages. Taking a low-interest loan from the Thrift Savings Plan (TSP) to pay off significantly higher interest rates on debt can potentially lead to great cost savings. Then again, the benefits may not be what one expects at the end of the day.
Any earnings that money withdrawn from the TSP could have earned had it remained in the account might be greater than the savings realized from interest on other loans. If a 2 percent loan from the TSP replaces a 20 percent loan on a credit card, but the stock market yields a 25 percent return that year, then the net effect is less money in the TSP at retirement. If the stock market performs poorly and loses 10 percent, then the move was beneficial.
Nobody knows exactly which direction the market will travel in a given year, much less by what degree. When making the decision to take a TSP loan, the best resource you can draw upon is your own judgment.
If a difficult financial situation is making it hard to sleep at night, and a TSP loan can alleviate that issue, it might be worth consideration. If the money from a TSP loan is used to buy a new boat, RV, TV, or other toys, it might not be the best use of retirement assets.
What do you think about TSP loans?
