Simple, historical trends show the market is up more than it’s down. We happen to be in a down phase right now. Cashing out funds now and then repurchasing the same number of shares latter would be financial suicide, sell low, buy high.

The stock market has outperformed any other investment vehicle over the long haul.

Leaving funds in the market before retirement is not wise. They should be liquidated out in a stepped plan to move those funds into a more stable vehicle so that money needed in the next few years isn’t subject to sudden market forces. Otherwise, people can find their money they need in the next couple of year to be worth a lot less.

You made an initial investment of $10,000, but imagine how big your rate of return would have been if you had either continued to invest during these down times or made that investment in stages. That’s the beauty of dollar cost averaging. The rate of return of mutual funds has been pretty good in the past couple of years. and investments made when the market was low would pull up investments made when the market was high. That’s the beauty of dollar cost averaging.

There are a number of other factors to consider when looking at returns. For example, there is the value of money lost due to inflation. A dollar invested 30 years ago is worth more than a dollar invested today. There are take benefits for participation in many retirement vehicles, pre-tax investing for example. So let’s say you were investing between 1969 to 2009, assuming you are retiring today. Over that time, every dollar you invested would be worth about $6.54 now using the compound annual growth rate of a average stock market based investment. So let’s say over that time you have made $30,000 worth of investments, it would now be worth about $200,000.

But over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent. – Source If you had left the $10,000 in the IRA you would not have lost about $3,000, 30%, to taxes and penalties instead using the statistical rate of return for the market that $10,000, without you making any additional investments, would be worth between to $18,000 to $20,000 a decade from now. By tapping those creditor protected funds that $7,000 you got cash in hand today cost about $19,000 in future value a decade from now.

You also have to factor in the vehicle the funds are invested in. A low rate of return might just mean the underlying investment may need to be moved. If the IRA is in mutual funds than some emerging market funds are returning as high as 69% in the last year if you are willing to take more of a risk. A set and forget approach to 403(b), 401(k) funds would not be the best approach.

If you are happy with your path, great. It appears to have bought you some peace of mind and that does have a value.

I don’t know more about your situation but just purely from an academic POV if your problem was solely credit card debt you could have decided to pursue bankruptcy, addressed the credit card debt or discharged it, not touched the IRA and then been able to up your contributions to your 403(b).

Steve

I am a teacher with a 403b (worth about 15% less than I have contributed to it) and a pension in 19 years. I cashed out the IRA, paid off the credit card bills. Now I am able to purchase years of experience to add to my retirement & up my contribution to the 403b, and get better disability insurance. Why is this a “really dumb move?”

Oops, missed that. It’s what I assumed.

Granted not every situation is the same but from helping people since 1994 the typical pattern I see is that rather than tackle the underlying problem people will drain savings and investments which temporarily solves the problem but only pushes the inevitable out into the future. Since the 23K was for a consolidation it makes logical sense for you find a local bankruptcy attorney you like and go talk to them.

Discharging your past debt with bankruptcy will give you the breathing room you need to make it each month and save.

Keep me posted on how this goes. I’m really concerned about you.

Big hug.

Steve

To answer your $23k loan question, it was answered in the second paragraph: it is a loan to pay off a credit card.

DJ