Help Me Retire: I want to retire next year, but I have $25,000 in credit card debt and a major monthly mortgage payment — I also live with my three kids and ex

I plan to retire at the end of next year with $25,000 in credit card debt and 15 more years to pay my mortgage. The credit cards have 0% interest. I have a good medical benefit when I retire and it will cover my two sons under 26 years old. My monthly expenses are $2,000, including life insurance, utilities, and a car payment.  

My mortgage is around $4,000 monthly impounded. The interest rate is 2% until January 2022, then 3% until January 2023 and the remaining loan is 4.5%. Is it worth it to refinance to a lower rate? I also plan to just pay the principal and pay interest in December and April. I have two credit cards: one that totals $20,000, where the 0% promo ends in April 2021, and another with $4,500 where the 0% interest promo ends this December. 

I work for the state and have a pension and 401(k) and 457 investments that total $110,000. I also have one month’s worth of expenses in an emergency fund. I can only apply for a loan to the retirement accounts while employed. 

I would like to ask if retiring will be a good idea. If so, is it appropriate to take a loan with my investment to pay off the credit card debt before retiring? Based on our benefit, I don’t have to repay the debt (to the 401(k)) after my retirement unless I win the lottery or something. There won’t be a penalty. My annual gross income is $96,000.

I’m a cohabitant with my ex on the house but get no contribution from him at all. I am working with my lawyer to see if I have the right to kick him out of the house.

Please help.

Thank you.

CDT

See: I’m a 57-year-old nurse with no retirement savings and I want to retire within seven years. What can I do?

Dear CDT, 

You have a lot to juggle, so the fact that you’re reaching out to someone for some financial guidance should be deemed an accomplishment all its own!

The truth is, you may want to hold off on retiring if you can. Having $110,000 in retirement accounts is great, and you don’t want to have to start dwindling that down while also trying to manage a way to effectively pay down credit card debt and a mortgage. Should an emergency arise, taking a big chunk out of that nest egg could end up hurting you significantly in the long run. 

“I think she needs to take a hard look at her income and expenses,” said Tammy Wener, a financial adviser and co-founder of RW Financial Planning. “When it comes to retirement, so many things are out of your control, like inflation and investment return. The one thing you do have control over is expenses.” Furthermore, your pension may be enough to maintain your lifestyle — though advisers wondered what exactly you would be getting from that pension every month — but you would still be better off with a larger nest egg to fall back on. 

Say you retire next year after all, but you still have credit card debt and hefty bills to pay. Any retirement income you have with and outside of your current funds may not be sufficient for your current living expenses, and if in a few years you realize this, you could end up back in the workforce — though it may be hard to get the same or a similar job you already have. 

Let’s look at your 401(k) and 457 plans for a moment. You said you could take a loan and based on your benefit you don’t need to pay it back, but you should be extremely cautious about this. With 401(k) loans, employees may be required to repay that loan if they’re separated from their employers, so this is a stipulation you should absolutely verify. If there was any misunderstanding as to how a loan is treated, that remaining loan would be treated as taxable income when you left your job, Wener said. 

Financial advisers usually caution investors not to take loans and withdrawals from retirement accounts if they can avoid it, and in your case, this may be especially true as you plan to retire in the next year. When you take a loan, you may be paying yourself and your account back, but your balance is reduced by the amount of the loan, which means you could lose out on investment returns. In the midst of this pandemic, many of the Americans who took a loan or withdrawal regret it now, a recent survey found. “I would not recommend ‘swapping debt’ by taking a loan from her investments,” said Hank Fox, a financial planner. “Instead, she should pay whatever amount is due each month to avoid the finance charges and continue to pay-down the balances.” 

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Also, consider what would happen if you continued to work: you’d still be able to contribute to a retirement account, boost your savings and, if applicable, reap the rewards with an employer match. You’d also narrow the amount of time you have between retirement and when you can claim Social Security benefits, Fox said. 

Outside of the retirement accounts, you should try to build a “sizable” emergency fund, Wener said. Financial advisers typically suggest three to six months’ worth of living expenses, though you might want to strive for closer to six to offset any undesirable scenarios. 

I’m not sure what the motivation was to retire next year, but if you can delay it, this may be the best solution. “The first thing I would recommend is that she reconsider retiring next year,” Fox said. “Since she will be 57 in November and assuming she is in good health, she should expect to be in retirement for 30 years or more.” 

If postponing retirement is not an option, and it isn’t always, he suggests reducing or eliminating your mortgage, since it’s your largest expense by far. You could refinance, Wener said. Interest rates are very low these days, and while you may end up paying a little more every month for the next two years compared with that 2% rate you currently have, you’d end up paying the same and then less from February 2022 and on. 

As for your credit cards, having a 0% interest rate is such a huge help in paying off debts faster, so you should try to extend that benefit, either by calling and asking about your options with your current credit card company or looking at alternative 0% interest cards. 

A financial adviser — specifically, a Certified Financial Planner — could really help you crunch the numbers and find meaningful ways to make the most of the money you have now and will be getting in retirement, said Vince Clanton, principal and investment adviser representative at Chancellor Wealth Management. 

An adviser can gather information on your current earnings and expenses, retirement savings, potential Social Security benefits and pension and create a financial plan to help you navigate retirement. “Voluntary retirement, and particularly early retirement, are very big decisions,” Clanton said. “It’s extremely important to know and understand all of the variables.” 

Letters are edited for clarity.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com