7 ways to avoid tapping retirement cash

"Reverse mortgages also come with certain protections," says McMahan. "Even if the value of the house goes below the value of the mortgage, nobody can make you move and after you die, the debt is forgiven for your children."

While reverse mortgages can provide cash in an emergency, they come with pricey fees based on the value of the home rather than the value of the loan.

According to the U.S. Department of Housing and Urban Development, regardless of how much borrowers take out, they can expect to pay an origination fee of up to $6,000 (2 percent of the first $200,000 of the home's value plus 1 percent for any equity over $200,000) and an insurance fee of up to 2 percent of the home's value.

Borrowers are also responsible for paying closing costs, which may include appraisal, title search surveys, inspections, mortgage taxes and credit check costs, as well as monthly service fees of up to $35.

Get a personal loan

People who don't have home equity but do have good credit may consider personal loans.

Available through banks and credit unions nationwide, personal loans are unsecured, meaning they don't require collateral such as a car or home. Their interest rates and terms are largely based on the borrower's income and credit history.

Skeels advises borrowers to start their loan hunt with banks, credit card companies and credit unions with which they have an established relationship. If they come up dry, borrowers may be able to woo lenders by offering a different asset as collateral, such as a paid-off car.

"You can get a used-car loan on your existing vehicle for maybe 50 percent of what they think the value is, and the interest rate would probably be 2 (percent) to 5 percent lower than if you got an unsecured (personal) loan from the same lender," says Skeels.

“Interfamily loans can work out marvelously for everyone, and they won't deplete your retirement.”

Borrow against assets

People who own securities, futures or stock options can borrow against their portfolios in what are known as "margin loans."

"With margin loans, you can usually borrow up to 50 percent of your portfolio at a rate that's lower than unsecured loans," says Ward.

Such borrowing can be risky, however. "It's a double-edged sword," says Ward. "If the securities you're borrowing against go down, you have to either pay back the loan (with interest) or invest more assets to get your portfolio back up."

Tap into insurance

Sometimes an insurance policy can be a source of quick cash.

For example, borrowers who have been paying on a whole life insurance policy typically can borrow against the money in their accounts at a rate under 5 percent, says Don Humphreys, president of Voyager Wealth Management in Harrington Park, N.J.

"You never have to pay it back," Humphreys says. "Whatever you borrow will be subtracted from your death benefit, but you're not required to repay it like you would a loan."

Humphreys cites the example of a borrower who has built up a $50,000 account and wants to buy a $20,000 car for a grandchild.

"You can take that money out without paying it back, but now you only have a policy worth somewhere close to $30,000 for your beneficiary," says Humphreys.

Those who repay must pay back the full loan sum plus interest to restore the insurance policy back to full value. Although policyholders can borrow up to 100 percent of the cash value of a policy, borrowers who drain their accounts without repayment are at risk of the amount of the loan (plus interest) one day exceeding the maximum cash value of the policy.

Should the loan grow that big, the borrower must pay the difference.

Turn to family

Before tapping a 401(k), McMahan encourages families to borrow from each other.

When doing so, it's important to create mutually agreeable loan terms, put the transaction in writing and seal the deal with a witnessed promissory note, he says.

"Interfamily loans can work out marvelously for everyone, and they won't deplete your retirement," says McMahan.


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