Should I Drain My 401(k) to Stay in My Home? – Cynthia

“Dear Andy,

I am 62, on SS Disability, very recently separated, with a house that’s worth at least 250,000 and I owe 143,000. My 401K has about 115,000. I can’t survive on my SS. I can’t rely on my ex for anything.

He has ruined what used to be my excellent credit so I can’t refinance. I’m on the 3rd year of a 5/1 ARM. Now, I don’t know how to support myself unless I cash out the 401K. I don’t even know how to go about it.

But, my mortgage payment is $1250 and my SSD is $1140. I have about $2,000 in savings and that’s it! I need to know what to do! I was thinking about selling the house but with this market, who knows how that will go.

Should I cash in my 401K to avoid losing my house in this market where nothing is selling?


Dear Cynthia,

It sounds like you have some equity in your home, that’s a good thing. Unfortunately, the mortgage payments are completely unaffordable based on your current income. Unless you’re able to increase your income, that won’t change. You could cash out part of the 401k to keep things afloat, but I’m afraid that may only provide temporary relief and won’t solve the most important dilemma, the unaffordable mortgage payments. Yes, you’re getting to an age where it may be appropriate to start drawing on your retirement, but you want to make sure you can stretch that out so you can live comfortably for the rest of your life.

I would suggest you look into getting the home on the market for sale. If you could pull the equity out of the home and not dip into the 401K, you could have a nice nest-egg saved. You can then find more affordable housing that doesn’t stretch your budget beyond what you can afford. Sure, you could hold on for a few more years and hope that home values improve, but how much will you spend from your 401K in the meantime? What happens if home values stay where they are and you are in the same spot a few years down the road, only with less in reserve?

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I’m sure you worked very hard to build your 401K over the years. Those funds are what I consider your “happily ever after funds”. Protect them and make good decisions with how you spend it and you should be able to live at the very least “comfortably ever after”. If you have more questions or would just like to keep us posted on your progress please do so in the comment section below. I am subscribed and will do my best to answer any questions as promptly as possible.


Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.

Steve Rhode

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