Cash out 403(b) retirement account to quit job?

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Dear Liz,
I have been working for the same organization for 17 years. I’ve accumulated $270,000 in my 403(b) account. I have a resort property on which I owe $200,000. If I pay it off, I will have monthly income of around $3,000 per month. This will help offset the loss of my $3,600-per-month job. I really hate to cash in the retirement account, but it will be difficult to find employment to replace my current position. I am 45 and have a great family that I want to take care of. Please advise.
— Rod

Dear Rod,
If you want to take care of your family, then don’t do something as stupid as prematurely cashing in a retirement account.

Such a withdrawal would likely shove you into one of the top tax brackets, which means you could lose a third or more of your retirement to federal income taxes. Add to that the 10 percent federal penalty for early withdrawals. If your state has income taxes, you’ll pay those too, plus the state’s early withdrawal penalty. On such a big cash-out, it wouldn’t be unusual to lose half or more to taxes and penalties.

As bad as that is, the tax bill you’d owe pales in comparison to what you could lose in future retirement income. If left alone, your nest egg could grow to over $1 million in 20 years, assuming you average 7 percent annual returns, which is less than the historical long-term returns of the stock market.

If you’re bored with your current job, make an appointment with a career counselor to discuss your options. If you’re really longing for early retirement, then start slashing expenses and piling up more cash. Books such as “Your Money or Your Life,” by Vicki Robin, Joe Dominguez and Monique Tilford, have inspired many to retire years ahead of schedule. Careful planning — and avoiding dumb moves — can get you there.

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