Financial literacy is lacking in the United States. If you don’t believe it, take a peek at the questions on any financial forum.
People make awful money decisions, and a lot of it is due to a lack of education.
Today’s example features a man who asked the finance community if he should empty his 401K to pay for a wedding.
Should You Empty Your 401K to Pay for a Wedding?
The Original Poster (OP) came to the internet with a money question that highlights our collective lack of financial education.
He asked the community if he should use the money in his retirement account to fund his wedding.
Agreed To Pay, No Money
The lack of sense didn’t start with the question; it started when he promised his future wife her dream wedding, all at his expense, when he knew from the start he couldn’t afford it.
OP stood silently watching as his bride-to-be signed notes for vendor after vendor, blissfully unaware that he was lying about his ability to pay.
Unaware of the High Cost
OP wasn’t necessarily lying. His lack of financial literacy showed immediately when he hid his head in the sand about how much money weddings really cost. He wasn’t an active participant in the budget, and when he finally decided to step up, it was almost too late.
“As time went by, I realized that the total cost of our wedding was an absurd amount of money,” he said, adding that he was afraid to do the math to see how bad it really was.
OP realizes he should have played a more significant part in the wedding planning. He mentioned that he should have hindered some of her requests, but feels like everything is now signed off on, so he’s unsure what to do.
Can’t Cancel
OP refuses to cancel. Invites are out, and his soon-to-be bride is ecstatic about the pending nuptials.
Unfortunately, he bit off more than he could chew.
How To Pay
OP doesn’t have the money to pay for the wedding. He came to Reddit because, as he describes, his only option is to cash out his 401K to pay for it.
Although it seems like he’s set on the decision to cash it out, he came to the community seeking a second point of view. He’s afraid of hurting his future financial security and asked if there are any ramifications he hasn’t considered.
DON’T DO IT DON’T DO IT
Even users in a community called “Poverty Finance” agreed that cashing out a 401K to pay for a party is the worst idea in the history of ideas.
OP would be destroying his future to pay for a single night.
Compounding the Loss
One user said that OP isn’t considering the total opportunity cost of using his 401K to pay for the wedding. He’s not just losing the money he takes out; he’s losing all the potential gains that money could have made over the next 20-40 years.
If he took out $20,000, he’d not only lose that 20K, but he’d also lose an additional $90,000 over the next 25 years, assuming a 7% rate of return.
It’s insane to throw that away for a single night.
Taxes and Penalties
Other users informed OP that any early withdrawals from a 401K account result in early withdrawal penalties and a tax on the distribution.
Early withdrawals typically cost 10% in penalties, and he must pay taxes on any distributions.
We don’t know how much money OP has in his 401K, but he may lose far more than he bargained for.
What if the Marriage Doesn’t Last?
We don’t want to consider that a marriage will fail, but is it worth the gamble? How would you feel if you took all your money out of your 401K to pay for someone else’s dream wedding, only to end up single five or ten years down the line?
It’s not worth the gamble.
Cut and Renegotiate
OP doesn’t have to cancel the wedding altogether. He must sit down with his fiancée and develop a reasonable wedding budget. Then they need to go back to the drawing board and decide which vendors to keep, which to cut, and where there might be wiggle room.
If OP is ready to get married, he must be prepared to discuss finances with his bride-to-be, and they must be able to compromise on a wedding that fits their budget.
If they can’t do that, the marriage is doomed to fail, which makes the 401K withdrawal even more ridiculous.