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Have high-interest debt? Find a way to pay it off

I got laid off at age 58 with a six-month severance package. My 401(k) is at $46,000 and I haven’t rolled it over yet. I am looking for another job. I have been offered the chance to continue as planned with a company pension. It would start at age 65 at $1,300 a month. Or I could take a lump sum that may be $140,000 to $170,000.

Six months ago, I set up a debt consolidation loan for about $24,000 of consumer debt at an interest rate in the mid-20s. It translates to a $750 monthly payment. I also have about $15,000 in debt that is not consolidated that I would also like to pay off. I would like to take $40,000 plus penalty from the pension money and pay off all my debt, then roll over the remaining $100,000 into an IRA. If the actual amount of the pension is $170,000, I would like to hang on to about $20,000 so that I have $10,000 for emergencies and $10,000 for a down payment on a home. I feel that paying off this debt would be in my best interest both in the future and now, and since I may not be able to get an income close to what I was making. — C.M., by email

You’re really caught between the proverbial rock and hard place. In better circumstances, you would not take the pension until you reached age 65 and would, reluctantly, redeem the $46,000 in your 401(k) account and use the net cash to pay off your $24,000 consolidation loan. Then you would work on paying everything else off from new earnings. But you’re stretched perilously thin. So taking some of the pension money to cover expenses until you are back at work is reasonable.

One thing you shouldn’t think about at all is putting money aside for the down payment on a house. The last thing you need is a new long-term debt commitment. Finally, it would be difficult to overemphasize how important finding a new job is.

I’m writing about your column on “Spending More in Retirement Is Doable.” I have amassed a $2.4 million portfolio. I recently went conservative. I am 64 now and want to avoid huge market fluctuations. My portfolio is about 30 percent equities. The rest is mostly in fixed income with some cash. Starting in 2017, I plan on taking $3,000 a month out of investments to cover mortgage and girlfriend money. I have never taken money out of my portfolio before, and after reading your columns and what I know about the 4 percent rule, I should never run out of money, right? I also have $8,000 a month in government and airline pensions until I die. Am I too conservative? Or am I in good shape? I know there are no absolutes, but I don’t want to be irresponsible with my money. — V.S., by email

One way to get comfortable with the question of portfolio survival is to visit the Monte Carlo analysis section of the portfolio visualizer website. There you can enter a sample portfolio and test its ability to survive at different withdrawal rates.

Your withdrawal rate is so low, even allowing for future inflation adjustment, that you have a 100 percent chance of portfolio survival for 30 years using a typical 60/40 stocks/bonds portfolio. Indeed, you would have to increase the annual inflation-adjusted withdrawal to $72,000 a year before the survival odds would drop from 100 percent to 99 percent.

This suggests that you are a big-time under-spender. So I say go for it — spend more on your girlfriend if you have trouble spending it on yourself.

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