Atlanta single mom drained $85K from her retirement on partner’s stock tip — now they've split and she’s starting over at 54. The Ramsey Show's advice

Now, with a teenage son with special needs and just over a decade before traditional retirement age, Sabrina is rebuilding from scratch. She recently called into The Ramsey Show to ask what to do next.

“I’m basically starting from scratch,” she told co-hosts Ken Coleman and George Kamel. “I just want to make the right decisions going forward (1).”

The real cost of draining $85K in your 50s

When Sabrina withdrew money from her retirement account, she triggered more than just a loss.

Under IRS rules, withdrawals from most tax-advantaged retirement accounts before age 59.5 typically face a 10% early withdrawal penalty, plus whatever you take out is taxed as income. On $85,000, that could mean an immediate $8,500 penalty, not including federal — and possibly state — income taxes (2).

But the bigger loss may be invisible: compound growth.

If that $85,000 had remained invested and earned a 7% annual return, it could have grown to roughly $167,000 in 10 years, and about $191,000 in 12 years (3). That’s a lot to lose out on by cashing out early, especially in the final stretch before retirement.

For many Americans in their mid-50s, retirement savings are already fragile. According to the Federal Reserve Survey of Consumer Finances, only 57% of households headed by individuals aged 55-64 had retirement account balances.

Fidelity Investments suggests that by their mid-50s, workers should aim to have around seven times their annual salary saved. Sabrina now effectively has no retirement savings.

The next steps to recovery

In romantic partnerships, current and former, financial boundaries can blur.

Sabrina’s situation highlights two overlapping dangers:

• Making investment decisions based primarily on personal trust rather than independent research
• Withdrawing retirement funds well before retirement age

Since recovering the money appears unlikely, Kamel urged her to consider moving on rather than spending more on attorneys to fight her ex for some of the money back.

“This is a lost cause,” he said bluntly, encouraging her to focus on rebuilding instead of chasing what’s gone.

The first step is to start with the right foundation. Sabrina currently has about $46,000 in savings, mainly from the sale of her home, and roughly $30,000 in debt, including credit cards, a car loan, and legal bills.

The hosts recommended wiping out the consumer debt quickly, especially by paying off the car, which would free nearly $500 in monthly cash flow.

With debts eliminated, they suggested keeping around $15,000 as an emergency fund, potentially more, given that she’s a single mother to a child with special needs.

Then comes the rebuild. Sabrina earns about $50,000 annually in W-2 income and additional income from her home organizing business, bringing her estimated annual net earnings to around $80,000.

The Ramsey plan: invest 15% of her income going forward — about $12,000 per year, or $1,000 per month — into tax-advantaged retirement accounts.

If she invests $1,000 monthly, increases her income, and invests in diversified mutual funds, she could accumulate more than $500,000 by age 70, the hosts claim (1).