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Your retirement account may be worth more than you think
It’s tempting to turn to your retirement account when things get tight and you simply need the cash.
You probably already know why that’s a bad idea.
- You may lose growth potential, since the money you borrow is no longer in your account to grow for you.
- You may be taxed twice. Interest is repaid with after-tax dollars; you’ll owe tax on that money again when you withdraw it in retirement.
- You’ll pay interest on the loan, usually the “prime rate,” as reported in the Wall Street Journal, plus 2%.
- You may owe taxes. If you separate from service, the loan balance could be subject to income taxes, as well as a 10% penalty if you are under age 59½.
Here’s something you may not have considered though. And you shouldn’t feel bad about it because it’s not something that gets a lot of press.
It’s about your net worth
No matter who you are, no matter how much you make or how much you save, raiding your retirement account has a negative impact on your net worth. And your net worth matters because it’s the key indicator of your overall financial health.
And the more financially healthy you are, the more options you have in life—from volunteering to traveling to just sleeping better at night. Where your future takes you is up to you. Financial wellness makes that possible.
What’s your number?
Net worth isn’t tricky. It’s simply all your assets minus all your liabilities—or everything you own minus everything you owe.
- The value of your house
- The value of your car
- Your retirement account balance
- Your savings account balance, which may include stocks, bonds, cash, etc.
- Your mortgage
- Your car loan
- Credit card balances
- Student loan balances
Assets – liabilities = Net worth
And that’s your total net worth.
You can see that when it comes to calculating net worth, how much you make doesn’t matter. It’s all about what you own versus what you owe. Your paycheck? That just helped you get there.
Assets are in the eye of the beholder
Let’s take a look at some of your assets. They can be deceptive. Sure, buying things like houses, cars and jewelry can help us mark major milestones, but they’re only assets if they’re worth more than you owe.
For example, your house. Regardless of what you paid for it, its value as an asset is determined by its present value versus what you owe on it. The same is true of your car.
When you really start examining your assets, your retirement account holds a unique position. It doesn’t go zero to 60 in…well...anything. But it’s there for you, day after day, keeping you financially well today and giving you hope for a killer retirement tomorrow.
As long as you keep your money in your account.
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