As more Baby Boomers begin to approach retirement age the thought of how those golden years will be spent tends to be more of a preoccupation these days. Unlike many of our parents who worked for a company in excess of 30 years and then walked out with the gold watch, they had a retirement savings program that soon followed. A family of four could get by and live comfortably on one income, not so anymore.

More and more American’s are beginning to call on their reserves to get them through the leaner times they find themselves in today. The Individual Retirement Account (IRA)or 401K is proving to be the vehicle of choice, simply because their is no other choice. The Home Equity Loan is no longer an option as the real estate market continues to decline and homes that were once rich in cash are no worth less than the loan which secures them.

The problem is that the recent returns in the stock market have been abysmal. IRA’s that once offered a promising future have become mired in the financial wipeout known as the housing crisis. An analyst on TV recently pointed out that a case could be made for the last 10 years, in which the returns in the stock market have been flat. For every 10 year bull market we experience, it is followed by a financial donnybrook such as the S&L crisis, the dot com bust and now housing. Ten years to grow, six months to blow.

Does Cash Out = Cash In?

What is the best opportunity to maximize your investment? Real Estate prices are becoming very attractive these days and most prognosticators think they will continue this trend at least in the short term. Is it time to consider cashing out your IRA and investing it in the real estate market?

First consider the consequences. IRA withdrawal’s are subject to a 10% penalty. Extend a big “thank you” to the next government bureaucrat you see. After all, you should be ashamed for wanting access to your money. The amount you remove from the account will be subject to your income tax rate. If there is anything left, compare it to what you would expect to make or lose as you go forward with your investing alternatives.

Take a look at where your account balances were 9-12 months ago. My guess is that you could have possibly withdrawn the money, paid the tax and penalty and still be better off from where your account stands today. Do you then invest in real estate that might also provide you with the increased benefit of current income? Is the potential appreciation better in a tangible asset or are you better served with increased volatility, awaiting the next hotspot in the world or another financial scandal here at home?

Maybe you also have a variable interest rate mortgage that is resetting. You need to pay down your balance to lock in a fixed rate. The cash is slowly or quickly (based upon recent events) evaporating in your retirement account. Could you direct this money elsewhere that would provide you with a better benefit?

Before you do anything you need to speak with your tax advisor to determine how a withdrawal would affect you. We probably all need to lobby our representatives to relax some of the rules on early withdrawal, or maybe they could just provide us with the same pension they have.