I retired 3 years ago. When I hit 62.5 years old I cashed out my 401K and paid everything off. I had to pay income tax on it, but no penalties. I left about a thousand dollars in the balance. I then continued working until I hit 66 +. I signed up for Medicare at age 65 (no charge at all for part A). And then signed up for Social Security at 66 +. I continued working until about 67 and then quit. During those few years, I was able to recover about 90% of my original amount of 401K because we no longer had ANY debt, and I maxed out my contributions, along with company match at 5%.
So, when I finally retired, the stocks were plummeting and I did the math. I calculated how much I had contributed to my 401K and company match. The stock market was doing horrible then, and stock prices were falling bad. I decided I better go ahead and cash out, everything 100%. I did. I took all that money and put it into a regular bank savings account with a debit card and a very, very modest interest rate. (Hey.... I wasn't LOOSING money this way any more, and I am guaranteed at least a little interest, not a month-by-month 10% loss, until nothing was left!)
Well, it turned out, after I got the final check from the investment company, the amount on the check was $10.00 more than all the cash contributed to the account over that 3-4 year period. Had I kept the money there a bit longer, I would have actually been "negative" my original investment.
I watched the stocks for a while, and they kept plummeting. I was so glad I made that decision. Stocks eventually turned around some, and slowly came back up. But I still do not regret my 2 decisions with withdraw, pay everything off, build back up, and then eventually withdraw it all completely. I don't advise this for everyone, but I feel much better that my original investment is much safer right now than with the falling stock market.
Because we no longer have any debt, that savings account has since doubled from when we first started it. It was possible, only because cashing out made better sense. The interest on loans will kill you!
If you are paying more in interest on your loans than what you are gaining on interest in your savings, then deplete you savings (whatever method you've chosen) and pay off those high interest loans and you will be money ahead. Then, the secret is to pay yourself back by tucking away the original mounts you were paying for all those loans and secure it in a simple saving account AND do not touch it!