One person using up an individual retirement account
In early 2010, somewhere in middle America, a forty-something woman with two small children, was freshly divorced. The settlement : no cash or alimony, but she did get her ex-husband’s family farm, along with the old home place on it, a relic double wide. She continued to live there.
Since before she was married, she’d had a good job as a comptroller for a large business. The job was good enough to instill the ambition to better the housing situation for herself and her children. After all, the drafty double-wide was falling apart a little more with each passing season and storm. She wanted to build a new house on the farm.
A loan officer at a mortgage company analyzed her finances. She had value in the land, none in the tin-can-on-blocks, and a good job that paid enough money to afford enough of a loan to build a modest house. However, she was going to be about a third shy of the down payment. The mortgage analyst advised her to find some source of extra cash to make up the difference. (If he winked-winked, she missed it, but she would see it later).
Her long, good standing with her employer provided the answer. She would borrow from her Individual Retirement Account, IRA. The needed ‘cash’ would clean out the IRA, but in her mind she was still easily young enough to pay it all back by the time she retired.
So the order of events was :
- Borrow from her IRA.
- Present the borrowed IRA money to the mortgage company as cash.
- Obtain the mortgage.
- Build the house.
- Move in.
- Discover the difficulty of making monthly payments for the home loan and the IRA.
- Buy groceries and gas with credit cards, which increased her debt.
- Transfer card balances to new cards, then use the new cards to pay off the old ones, which increased her debt.
- Make a few house and IRA payments with a few credit cards, which increased her debt.
- As the company comptroller, she was the first to discover that bad investments, since 2001, had caused the company to fail with no safety net, so she was the also first to know that the company was bankrupt and everyone, including her, was out of a job.
- No longer able to make any payments toward the house, or the IRA, or the credit cards, it only took ninety days for the foreclosure to put her on the street.
- No job
- No home
- No retirement money left.
- Nowhere to go.
Read more in GHOST BUBBLE by Andy Bozeman, a Kindle e-book, available HERE.
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