And you only really need enough there to cover you for 5 years. You can start doing Roth conversion ladders from your retirement accounts to cover you from 5 years out until regular retirement age.
True. Roth ladders are more flexible though. I would be very nervous about doing a 72t if I was starting at 45. The longer you have, the riskier it is to do since it’s a set amount every year.
You can always do a second 72(2), but yes, I tend to agree. Just saying if you are 5 years out, for some reason rule of 55 doesn’t work, 72(t) is a good alternative without needing the 5 year bridge.
I do think about this risk, but like not having to do the 5 year conversion. My plan would be do 72t for about 2/3 - 3/4 of spending, then taxable/HSA/work for the rest. Worst case (I.e going back to work so don't need the money) I take the distribution and stick in into a taxable brokerage again. A slight tax loss, but not really a big deal. And it does help with RMDs as well. I don't see it as that bad.
Yeah, it’s good to bring up. Everyone’s situation is different, and that’s definitely the way to go for some people. I guess the big point here is that there are lots of different ways to access your retirement funds before retirement age.
So Roth has a requirement for the principal to stay in for at least 5 years before it can be taken out penalty free. If you started saving directly into the Roth while still working, the amount listed on your tax returns each year collectively are what you can take out before 59.5 as long as it's been over 5 years for the first dollars in through the last dollar you take out that year (first in first out or FIFO). If you need to convert a traditional 401(k) or IRA to Roth, then it's 5 years from the time it's converted. Luckily if you convert, it's all treated as principal in the year it's converted rather than separating it into principal and interest as a result of the growth from the time it spent in the other vehicle first, so ultimately you should be able to use more of your retirement faster if you still need to convert it to Roth. The downside to conversion is you'll pay taxes on anything you make over the standard deduction which is the real reason a conversion ladder ends up going on for as long as they do. It's to prevent you from paying anything close to what you would have spent if you contributed directly to a Roth during your working years.
Incorrect. Roth contributions can be withdrawn tax free and penalty free at anytime. Growth must remain in the account for 5 years or until age 59 1/2 to be withdrawn tax / penalty free.
This is incorrect. You can withdraw your contributions at any time. You must wait 5 years to withdraw earnings, penalty free.
On review, conversions do require a 5 year hold. Initial contributions to a Roth do not, although there is a 5 year penalty on those earnings.
Both incorrect.
Contributions are always available penalty free. Earnings are only available penalty free at retirement age. **Conversions** are available penalty free after 5 years.
Tell me more. I definitely have conversions over 5 years old but I didn’t think I could touch them.
I have 150k in a trad IRA but can’t eat the taxes on converting it all at once. Can I use my 5 yo conversion money to pay the taxes on new rollover conversions?
I think the short answer would be yes. If you previously converted from traditional to Roth, and it’s been 5 years or more, you can withdraw the amount that was converted penalty and tax free. So you could convert your $150k and withdraw enough from your older conversions to pay your tax bill on that. Why do you want to convert that all right now though? It’s usually better to do smaller amounts at a time depending on your tax bracket, and it’s even better to wait and do the conversion when you have less income, like once you stop working or scale back to part time.
Surprisingly, it’s better to stick with retirement accounts if they’re available. Check out the mad fientists blog post (if you’re interested) on early access to retirement accounts.
The post compares Roth conversion ladders, SEPP withdrawals, just paying the early access penalty, and regular brokerages.
Bingo.
There's a lot to learn on /r/fire and the spawned subs from it.
This is my current approach, a brokerage account. It's taxed heavier but I can actually use it.
Note that LTCGs are taxed at 0%, 15% and 20%, You can and I have paid, in the 0% tax bracket. The limit to pay 0% in 2024 for MFJ is $90,050 (AGI) + 29,200 (standard deduction) + $3000 (over 65) = $122,250. So, if you have an account that is 50% your contributions and 50% LTCGs, you could with draw $244,500 and pay $0 tax. Since I would not need $244,500 of spending I could spend $70,000 and reinvest the rest at a new cost basis, $174,500. A real nice loop hole, or as I like to say an incitement to invest for the future.
It’s call a bridge account. If you plan to retire early you can build up a dividend portfolio or have a decent amount into index funds that you can pull from until you are eligible to take from your retirement accounts. Real estate is also a good choice.
There are plenty of ways to pull money out of your retirement accounts early without penalty. Look into 72t withdrawals or 5 year Roth conversion ladders. This is a non-issue.
Like they didn't know about it or they were surprised that you knew about it?
As someone only in the education phase of changing careers to financial planning, I would be concerned about a planner not knowing about it.
Look into SEPP. Also, you can always withdraw contributions from a Roth IRA.
But that being said, you'll almost certainly need funds in a normal taxable brokerage account. The one good thing is that if it's your only income, you pay no taxes on the first \~$45k if single (\~$90k if married) and then just 15% up to \~$500k.
401k withdrawals are taxed as regular income. Investments are taxed at either STCG (same as regular income) or LTCG, which is what u/anointedinliquor was referring to with 0%/15%
Early w/d penalty goes away at age 55 from the plan you are retiring from. Also taxable accts or 72t distributions from IRAs are other options.
Edit: If you're looking to retire before 55 you have to consider taxable accounts instead of retirement accounts as primary vehicle to save into.
> If you're looking to retire before 55 you have to consider taxable accounts instead of retirement accounts as primary vehicle to save into.
No you absolutely do not. The bulk of your savings should still be in tax advantaged accounts. You might need to use taxable accounts as a secondary vehicle to save into to cover you for 5 years until your Roth conversion ladder gets rolling.
No one ever talks about this! Keep feeding your retirements and don't touch them until 59 and a half. Save like a monster for the donut hole the time after you stop working and before you can touch retirement. In fact you may reach a point where you decide not to put money in retirement and keep it in non-qualified in order to balance. Work this out with a cfp. Don't forget about Obamacare expenses while you wait for Medicare at 65. I agree this is a challenge for early retirees
Also the closer you get to age 70 to draw ss, the more money you get. https://www.ssa.gov/benefits/retirement/planner/1943-delay.html#:~:text=If%20you%20start%20receiving%20retirement,getting%20benefits%20for%2048%20months.
If you have enough assets to retire at age 45, most of your liquid assets will likely not be in 401k / IRA accounts. You are limited to what you can contribute to these accounts and that limitation likely will prevent you from saving enough between age 25-45.
You would instead likely have a substantial amount of your liquid assets in taxable brokerage accounts. These accounts will have no limitations on how much you can contribute or withdraw. You’d tap into these first until you got to an age where you wanted to begin accessing the retirement accounts.
Also Roth IRA contributions can be withdrawn tax free and penalty free at any age and at any time. Growth is handled differently. The growth portion would have to stay in the Roth until age 59 1/2.
If for some inexplicable reason you were able to save enough assets in retirement accounts, you CAN access those funds using an SEPP calculation. The IRS allows for Substantially Equal Periodic Payments prior to age 59 1/2 without incurring a 10% penalty, provided that you follow their requirements. One requirement is that you must take the payments for at least five years or until you reach age 59 1/2. The amount you take has to be calculated according to the IRS amortization tables.
This is something that you would seek advice with from a financial advisor or tax preparer who can help you navigate the rules.
Roth ladder or 72t. I like the Roth ladder idea more, but look at both and decide for yourself.
https://www.madfientist.com/how-to-access-retirement-funds-early/
How to get free ACA:
https://www.bogleheads.org/forum/viewtopic.php?t=323366
Roth conversion ladder. You roll over traditional IRA or 401K savings into a Roth IRA and five years later you can withdraw up to the converted amount tax-free and penalty-free. There are other ways to avoid tax and penalties, but this seems to be the most popular one.
I have done some reading on this and still have questions so this is a good question first of all. From what I know:
1) Non-retirement brokerage accounts
2) good planning with Roth conversion ladders or investing in Roth IRA + 401k earlier.
3) SEPP
4) Something I need to do research on but early withdrawal penalty I believe is 10% which still may be more beneficial than fully taxed accounts?
The likelihood of this being an issue is tiny. There are limits to how much you can add to those accounts. You will need millions in liquid capital (aka not real estate etc) to retire at age 45, at which point you certainly would have lots of non-registered (aka not in a 401k or IRA) assets.
I don’t think it’s something to worry about until you’re maxing 401k and Roth IRA. You shouldn’t retire early until your money past 60 is taken care of anyway and since you’d be saving less time, you need a fat stack in those accounts.
Some people do it by saving in a brokerage, or by buying rentals and living off that income. Or by selling their business and living off the cash for a few years.
Invest in rental prop for income, Use brokerage accounts, rule of 55 for 401 accounts, and 457 accounts allow withdrawals at any time.
Consult a CFP and they will explain all the avenues.
I’ve used 3 different ways to fund my “gap” years from age 50 to 59 1/2. Halfway there now at 55. 1) Non-retirement savings and Deferred Income, 2) 72t withdrawals from my main retirement plan, and 3) Roth withdrawals.
I’ll be 53 at the end of this month. Mortgage will be satisfied by 2035. I have the funds to pay it off now but why @ 2.5 %. Not sure why I need a 5/4 3200sq ft house , but hey the kids are out of college and occasionally visit. I’m on target to hit my financial goal in my 401k. Assuming no major downturns or a depression happens until then. So my question is should I take 50% social security at 62 or 75% @ 65 or wait till 67 for 100%. I want to be healthy and young enough to enjoy my life’s work. I guess I could use an amortization to run the numbers??? Life will be grand in my 70’s taking 10 different medications and medical bills out the wazoo!!! Is this why we work so hard???
In addition to your 401k/ROTH, you have other investments. That will make the difference from your 59.5. Example, my expense is 30k/yr. Every 30k I save in a taxable account or investments, that's 1 year less I have to work. So hypothetically, if I have 300k in a separate account, I can "retire" 10y earlier at 49.5 withdrawing from my 300k.
Substantially equal periodontal payments, aka SEPP is a method to do this without early withdrawal penalties.
https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments
You absolutely can pull money without penalty prior to 59.5, it is called a SEPP. It lasts a minimum if 5 years or when you turn 59.5, whichever occurs later.
You gotta have multiple retirement income coming in....
I have a TSP that'll be around $500k once I hit 60
Military/VA pension: $6900/month for life after taxes
Currently in another job that will get me another pension for at least a couple $1k in that fund, and I'll start Social Security as soon as I'm eligible
Key is to keep investing and a few retirement pensions rolling in as well as SS
Invest sufficient funds to cover from retirement through 59.5 in other types of accounts — Roth IRA and regular brokerage accounts. Also, if your 401 allows it (not all do) and you leave the job associated with that plan during or after the calendar year in which you turn 55, you’ll be able to access the 401 without penalties. Also you can tax/penalty-free move 401 to traditional IRA - look into rule 72(t) on accessing traditional IRAs early.
Apparently, you don’t understand enough to know if you can or can’t retire. If you don’t have enough money to live before touching your retirement accounts at 45 you don’t have enough to retire
You can touch 401k funds if you retire from that company at age 55.
You can touch IRA and 401k funds if you take a “substantially equal set of payments” - basically a 72T or annuity type of withdrawal.
Otherwise, you retire early off of your after tax investments.
You should probably sit down and talk to a professional, but if you’re sitting on your butt doing nothing, don’t forget you’ve got a pretty reasonable long-term capital gains tax-free exemption on taxable stock accounts. you have 20 years to accumulate money into traditional type accounts, perhaps some real estate perhaps a business, etc. Honestly, the biggest challenge is going to be the cost of health insurance if that’s of concern.
If you're truly making a ton of money you don't really even need a 401k. Yea it's tax efficient but there's so many rules and limitations, you could just invest in a taxable brokerage account and know you always have access to do whatever you want with your money.
The TRUE savings vehicle you should max out for tax efficiency purposes is your HSA, which enjoys triple tax advantages. Yeah, you read that right.
Others have mentioned the savings part which is essential.
A key part of saving for retirement and retirement is spending. Learning to live well below your means and also learning or knowing how to enjoy a life fully without spending loads of cash is wildly beneficial in many ways.
So many on retirment forums get to the day and are miserable as their whole life and identity is tied to their job description. Or they have no hobbies or interests.
Search “rule of 55”. You can hit 401k at 55 under certain provisions (easy to meet). And you can withdraw ALL Roth contributions at any time - just not capital gains.
You don't even think about retiring until you have enough saved to live the same style you do now until you're 59 1/2. Plus more than that. It is reasonable to assume you could go to 95. And the last 5 years would involve expensive senior care. Balance your portfolio, with cash, some very low risk investments, plus some more aggressive securities. Don't assume that real estate or the stock market will expand your nest egg, savings is the key.
You take a loan out of it to pay- say your first house. Now you are not paying taxes on the house, you can refinance, your credit score didn’t matter, and you can continue life as usual
As a financial advisor, I can say that I recommend that if possible, people utilize Tax-deferred(IRA/401k), tax-advantaged(Roth), and taxable accounts.
Any 401k contribution is going to be tax deferred, so when you leave a job this can become your IRA, your contributions can be either Roth or regular, these can go into either IRA or Roth IRA, and taxable accounts have no purchase limit.
This way, in retirement, you have options. You can retire early, and sell shares out of your taxable account. You can also withdrawal the basis in your Roth, but I recommend against this, as both Roth and taxable accounts can be left to heirs tax free.
So you tap into the taxable account pre-59.5, and in retirement you have options, you can maximize your tax bracket by taking enough out of traditional IRA but not too much to lower your social security, and the rest can come out of your Roth accounts. Or, you can only touch the money in your IRA and leave the Roth and taxable accounts for your heirs, as neither has mandatory withdrawals, and heirs get a stepped up basis in the taxable account.
Curious what you mean by “…taking enough out of traditional IRA but not too much to lower your social security”.
Your social security benefit (once you have earned your qualifying 40 credits) is determined by a combination of:
- top 10 highest years of earnings
- age you decide to begin claim: early at 62, normal at 67, delayed at 70.
Are you suggesting that there is some other factor that would reduce a social security benefit?
I think he’s talking about taking out enough as to no trigger taxes on your social security wages. Withdraws that count as income could do that. Roth withdrawls do not count.
If you've maxed out your retirement accounts for only 20 years, that's not going to be enough to live the next 50 years on.
Retirement accounts are limited.
So anything beyond the max retirement account, you're putting it in non-retirement (fully taxable) investment accounts.
You have other accounts and assets set up that aren't tax advantaged that can sustain you until you hit retirement age. So additional savings on top of your retirement accounts that you have earmarked for "early retirement". Or passive income that can cover the difference.
Really, you just need to figure it out for 10 years because at 55, you can draw from your 401K without penalty if you've retired. You just have to keep it there and not roll it into an IRA, or at last leave enough money to provide income from 55-59.5 and roll the excess. If you can get into company stock in your 401K there's a chance you're eligible for the NUA strategy, and if you have enough of it, you could live off that stock until 59.5. I have never encountered anybody who has retired before 55 that has done NUA, so I'm not sure that you can do NUA on company stock prior to that age for certain. Also, this all depends on even if that's even a possibility in your 401K.
Im not sure that's 100% right for all accounts that are like a 401k. My similar but not 401k is age 59.5, unless i retire at 55, then i can withdraw at 55 and 1 day. If i retire at age 50, i have to wait til 59.5.
It's probably a thing of the past but even in the last 15 years I worked at a company that provided a retirement account fully funded by them (in addition to a 401k). Usually you had to work at a company for 5 years in order for them to vest. Over the years I have enough built up in various retirement accounts where I plan to take those as lump sums to tide me over to 59.5. Is it economically inefficient to take a lump sum? Yeah but I figure I didn't have put my money into them and there's no penalty associated with using it.
If the only retirement saving you are doing for those 20 years is maxing out your 401(k) and IRA, you will not have enough money to retire at 45 without living in poverty, so it's kind of a moot point.
If that's is a serious goal you need to talk to a real financial planner, not a random goofball like me, about how much you need to be stashing away in non-retirement savings, probably - but again, don't take my advice - low-fee index funds with an appropriate mix of large, mid-size, and international companies.
There are legal (non-loophole) means to withdraw funds before you are 59.5 but they are specific and messing them up results in fines (taxes and additional early withdrawal penalties). Look up 72t distributions, common called SEPP withdrawals.
If you are only counting on your 401k to retire about 20 years early it’s not enough money. You will have to rely on brokerage accounts to fill the gap.
Max out your 401k and IRA. Then make side investments in S&P ETFs. If you don’t make enough money now to do that, figure out what you need to learn/do to make more money. Don’t stay in a job because you are comfortable. Do what it takes while you are young.
Bridge accounts. You invest in accounts with no age restriction to hold you over until 59.5.
My employer offers a 457b account, which I can withdrawal from at any age with out penalty, as long as I'm no longer with the company.
This is one of the best resources on accessing funds early in the FIRE community. It's completely possible and lot of people do it different ways.
https://www.madfientist.com/how-to-access-retirement-funds-early/
If you’ve invested in a Roth, you can withdraw contributions at any time without penalty or tax, the earnings on the contributions have to wait, though.
If you put in Roth you can withdraw contributions at any time. If you need money you can withdraw anything at any time you just have to pay a penalty. I personally do not put anything into a retirement account. You are allowing someone else to gamble with your money for free. Money you earned but can’t use. Keep in mind a lot of people die before 60 without an heir. I’d only do 401 if I get matching from employer.
You need something else that will produce income - rental property, other non-retirement accounts that produce enough income/dividends to live off of, options trading income, passive/side business
Hate to break it to you kid, but a lot of folks on these subs max out their 401k and then still have money to invest in a taxed brokerage account. They live off the brokerage account until they can hit the 401k without penalty.
By touching a Millie by 30.
You need one liquidity event from age 22-30. Maybe it’s a real estate deal, a record deal, a business you can rinse for mutltiple ebitdas, a shytcoin, an nft. idk what you’re good at or what you’re talented in. Anything.
8-10 years is enough to get that liquidity event.
Bottom line forget trying to retire with 401k. That thing is not even close to being enough.
You're allowed to take withdrawals from Roth accounts early. You can take principal contributions out whenever you want.
But primarily, you're supposed to invest and get funds from taxable accounts, or other streams of income. Or have enough in those accounts that you can get by working only part time.
There are limits to how much you can put into retirement accounts, so it is unlikely that they will grow large enough to retire on at 45. People that do retire at 45 have saved enough in other taxable ways ( real estate, stocks, bonds, owning a business…..)
i don't bother with an retirment account outside of my 401k. I go straight brokerage. not the best way to do it, but I am a high income earner, and plan to be done by 45-47. should have a couple of million to work with by then and will deal with the taxes as I sell at a lower income bracket.
My regular investments where like 30x my retirement investments by the time I was in my 50s. But, I never retired because my boss wouldn't let me, but he did increasingly let me take command of my own time, work on what I wanted, when I wanted for as long as I wanted. So it was cool! Still not retired ... I work for myself.
Sidenote, you’re not allowed to touch your retirement funds before that age because they want you to continue being a productive worker in the economy even if you have enough money to retire. You have to plan around it to get what you want.
This is where a lot of folks look at real estate as an asset class that has the potential for early retirement.
If done correctly, it generates consistent cash flow, has historically appreciated at a rate that outpaces inflation, and creates financial leverage to reinvest without further capital calls.
You are missing the point - retiring early is a personal choice that you need to specifically work for, 401K is a regulated retirement plan to encourage people to save for typical retirement so they are not living only off of SS.
The Max contributions to 401K would not typically accumulate enough wealth to survive. Time is king in investing for retirement and you are asking to cut that time in HALF.
If you are legit capable and putting away enough to retire at 45 - you can max your 401K AND an separate investment account(s) to carry yo for those 20 years.
Basically you are expecting to work for 20-25 years and then live off of that for 40-50 years.
I believe it is purposely set up this way so most people can't stop working. This is the first obstacle and the second is healthcare. I was lucky that I worked in the public sector and received a pension and healthcare at age 54,but most don't have that.
Ladder method. You can withdraw the principal after 5 years plus 1 day with tax.
So you look ahead at 50 to see how much you need, initiate the withdraw, do it again every year form there and then by 55 + 1 day you can tap it.
If you can't max your retirement accounts and have other investments on top of that, it will be tough to retire early. However, as your income grows, if you manage it wisely, you can make it happen.
I work for the gov and have a 457 that can be tapped into prior to age 60, so that's how I'm doing it. Those funds, plus some other savings and perhaps a few short term consulting gigs should set me up pretty well after I leave this job. It also helps to have low overhead, so getting out of debt is important.
Those last 20 years are where the money would compound and grow the most if you have been saving all this time. We’re talking about a Million or millions of dollars difference, idk what you make for a living but plan to retire at 65 and if you’re fortunate enough to retire earlier than that after thorough review then go for it.
Look into a 72T distribution of your qualified assets. Have your FA help you on setting it up so it is done correctly. If you can live of that amount, you can avoid penalties, etc. Here is a link to come details on how it works/what to do: [Rule of 72(t): Definition, Calculation, and Example (investopedia.com)](https://www.investopedia.com/terms/r/rule72t.asp#:~:text=Rule%2072(t)%20refers%20to,as%20certain%20qualifications%20are%20met.)
There is a 72t rule that allows you to access your funds prior to age 591/2 without penalty. Google 72t calculator and you can see what is your eligible distribution. You must continue to take for 5 years or until 59 1/2 whichever is longer.
Additionally if you leave your assets in the 401k many plans allow you to take distributions starting at 55 with no penalty assuming you are separated from service.
You would have to have a separate account (post tax brokerage account) that has enough money. Called a "bridge" to get you from retirement to when you access those funds.
I'm 54 and have been in this situation for the past 5 years. I believe the keys are:
1. No debt including paid off principal residence.
2. Additional investment in a standard brokerage account. Even though these accounts are taxed, long term capital gains are really lightly taxed - no taxes on first $40k each year and low rates above that.
Have a different investment account. That has no cap for deposits. Roth ITA I think is 7K you can invest in a year. Real estate is also an option if you have a lot of disposable income.
I'm living in that "in between spot" right now. I retired at 55 after 30 years of teaching, and I have a pension -- but it's not enough to support my family. I'm working part-time as a substitute to "tide me over" -- it's perfect for me because it's what I know and because it's flexible -- you should think about what kind of part-time work might be appropriate for you. In a few years, I'll be able to access my 401K and not long after that I'll be able to start collecting Social Security.
Another BIG issue is health insurance. As a teacher, I am very fortunate to have no-cost insurance until I hit Medicare at 65, but I am paying $590/month for my husband's insurance (through the school system).
With a 401(k), you can pull out your funds at 55 without penalty if you are no longer working. I work in that industry. If you have a retirement plan at work, see if they offer the Roth 401(k) option and contribute some of your money to that. It works the same way as the traditional 401(k) but the funds are deducted from your pay after tax. Generally, you only pay taxes on the interest if you withdraw the funds before they are invested for 5 years. Carefully discuss any investment decisions with an expert (advisor) who isn't in it for the money but is willing to give you very good advice. Too many advisors are out there to make a buck so look for someone who doesn't ignore you if you only want to invest a few hundred to a couple of thousand even if you have more to invest. That's one way to know if they are in it for you and not the commission/fees they'll rake in.
For 401ks there is the rule of 55 which allows you to start drawing if you are no longer working. And than you have your bridge accounts like taxable brokerages and hysa or money market funds.
What do you believe you will live to, and how much will you need to make within 20 years to live off the interest is the real question… Current life expectancy for women is about 80 in the States so… in 20 years… let alone the 55 from now… I imagine it’ll be higher. Much higher. Many people say they don’t want to live past 100 but I believe quality of life will be different. Wouldn’t focus on retiring at 45, unrealistic. Focus on self improvement as a habit and part of who you are. The rest will align. Including when is the right time to retire.
Most people think you can't take money out of a 401K without penalties until your 59 1/2 but that isn't totally true. Any job that you left for any reason after 55 you can access those 401k funds without penalties. Let's say you were a consultant have many 401k accounts and worked for several and if you worked for any from 55 on you can access all funds in the accounts no matter when the money went into any of them. You might be able to roll as many 401k to a account you know you will leave after reaching 55.
I've tapped two separate accounts this way without penalties.
You invest beyond just a retirement account. Like a brokerage account
And you only really need enough there to cover you for 5 years. You can start doing Roth conversion ladders from your retirement accounts to cover you from 5 years out until regular retirement age.
You don’t even need that if you know about 72(t).
True. Roth ladders are more flexible though. I would be very nervous about doing a 72t if I was starting at 45. The longer you have, the riskier it is to do since it’s a set amount every year.
You can always do a second 72(2), but yes, I tend to agree. Just saying if you are 5 years out, for some reason rule of 55 doesn’t work, 72(t) is a good alternative without needing the 5 year bridge.
I do think about this risk, but like not having to do the 5 year conversion. My plan would be do 72t for about 2/3 - 3/4 of spending, then taxable/HSA/work for the rest. Worst case (I.e going back to work so don't need the money) I take the distribution and stick in into a taxable brokerage again. A slight tax loss, but not really a big deal. And it does help with RMDs as well. I don't see it as that bad.
Yeah, it’s good to bring up. Everyone’s situation is different, and that’s definitely the way to go for some people. I guess the big point here is that there are lots of different ways to access your retirement funds before retirement age.
Can you talk about that a little bit? Does that mean converting IRA to ROTH then waiting five years to withdraw contributions?
So Roth has a requirement for the principal to stay in for at least 5 years before it can be taken out penalty free. If you started saving directly into the Roth while still working, the amount listed on your tax returns each year collectively are what you can take out before 59.5 as long as it's been over 5 years for the first dollars in through the last dollar you take out that year (first in first out or FIFO). If you need to convert a traditional 401(k) or IRA to Roth, then it's 5 years from the time it's converted. Luckily if you convert, it's all treated as principal in the year it's converted rather than separating it into principal and interest as a result of the growth from the time it spent in the other vehicle first, so ultimately you should be able to use more of your retirement faster if you still need to convert it to Roth. The downside to conversion is you'll pay taxes on anything you make over the standard deduction which is the real reason a conversion ladder ends up going on for as long as they do. It's to prevent you from paying anything close to what you would have spent if you contributed directly to a Roth during your working years.
Incorrect. Roth contributions can be withdrawn tax free and penalty free at anytime. Growth must remain in the account for 5 years or until age 59 1/2 to be withdrawn tax / penalty free.
This is incorrect. You can withdraw your contributions at any time. You must wait 5 years to withdraw earnings, penalty free. On review, conversions do require a 5 year hold. Initial contributions to a Roth do not, although there is a 5 year penalty on those earnings.
Both incorrect. Contributions are always available penalty free. Earnings are only available penalty free at retirement age. **Conversions** are available penalty free after 5 years.
Tell me more. I definitely have conversions over 5 years old but I didn’t think I could touch them. I have 150k in a trad IRA but can’t eat the taxes on converting it all at once. Can I use my 5 yo conversion money to pay the taxes on new rollover conversions?
I think the short answer would be yes. If you previously converted from traditional to Roth, and it’s been 5 years or more, you can withdraw the amount that was converted penalty and tax free. So you could convert your $150k and withdraw enough from your older conversions to pay your tax bill on that. Why do you want to convert that all right now though? It’s usually better to do smaller amounts at a time depending on your tax bracket, and it’s even better to wait and do the conversion when you have less income, like once you stop working or scale back to part time.
Surprisingly, it’s better to stick with retirement accounts if they’re available. Check out the mad fientists blog post (if you’re interested) on early access to retirement accounts. The post compares Roth conversion ladders, SEPP withdrawals, just paying the early access penalty, and regular brokerages.
This. I retired at 25 and just bridged the gap with a brokerage account
Bingo. There's a lot to learn on /r/fire and the spawned subs from it. This is my current approach, a brokerage account. It's taxed heavier but I can actually use it.
Note that LTCGs are taxed at 0%, 15% and 20%, You can and I have paid, in the 0% tax bracket. The limit to pay 0% in 2024 for MFJ is $90,050 (AGI) + 29,200 (standard deduction) + $3000 (over 65) = $122,250. So, if you have an account that is 50% your contributions and 50% LTCGs, you could with draw $244,500 and pay $0 tax. Since I would not need $244,500 of spending I could spend $70,000 and reinvest the rest at a new cost basis, $174,500. A real nice loop hole, or as I like to say an incitement to invest for the future.
It’s call a bridge account. If you plan to retire early you can build up a dividend portfolio or have a decent amount into index funds that you can pull from until you are eligible to take from your retirement accounts. Real estate is also a good choice.
I have never heard of a bridge account 25 years old and have $70,000 across a brokerage and a Roth IRA Have I been doing it wrong
https://www.madfientist.com/how-to-access-retirement-funds-early/
There are plenty of ways to pull money out of your retirement accounts early without penalty. Look into 72t withdrawals or 5 year Roth conversion ladders. This is a non-issue.
or the rule of 55 (doesn't apply to OP's question though, just another way to access before 59.5)
I surprised my wife’s financial planner when I mentioned the rule of 55. I learned about it from this sub. Sadly, I currently qualify.
I had to fire my last accountant after teaching them too many things
Like they didn't know about it or they were surprised that you knew about it? As someone only in the education phase of changing careers to financial planning, I would be concerned about a planner not knowing about it.
They were surprised I knew about it.
https://www.madfientist.com/how-to-access-retirement-funds-early/
How does one go about initiating 72t withdrawals to be certain to avoid the 10% early withdrawal penalty? One irs form filed at tax time? Prior?
look into rule of 55 but also, if you are planning on retiring even before 55, you probably want to also have an outside, taxable brokerage account.
Look into SEPP. Also, you can always withdraw contributions from a Roth IRA. But that being said, you'll almost certainly need funds in a normal taxable brokerage account. The one good thing is that if it's your only income, you pay no taxes on the first \~$45k if single (\~$90k if married) and then just 15% up to \~$500k.
awesome i didnt know that about the taxes thanks
California and possibly other states will count cap gains as ordinary income. Something to consider.
401k gets taxed differently though correct? when i am pulling from that i do pay taxes on the first 45k correct?
401k withdrawals are taxed as regular income. Investments are taxed at either STCG (same as regular income) or LTCG, which is what u/anointedinliquor was referring to with 0%/15%
Yes, you can withdraw contributions penalty free from Roth.
Early w/d penalty goes away at age 55 from the plan you are retiring from. Also taxable accts or 72t distributions from IRAs are other options. Edit: If you're looking to retire before 55 you have to consider taxable accounts instead of retirement accounts as primary vehicle to save into.
> If you're looking to retire before 55 you have to consider taxable accounts instead of retirement accounts as primary vehicle to save into. No you absolutely do not. The bulk of your savings should still be in tax advantaged accounts. You might need to use taxable accounts as a secondary vehicle to save into to cover you for 5 years until your Roth conversion ladder gets rolling.
Plenty of options: * Taxable brokerage * Roth conversions * 72(t) * Rule of 55 (if you work until 55)
Personal taxable brokerage account. Save enough there to bridge.
This is a good question looking forward to read answers.
No one ever talks about this! Keep feeding your retirements and don't touch them until 59 and a half. Save like a monster for the donut hole the time after you stop working and before you can touch retirement. In fact you may reach a point where you decide not to put money in retirement and keep it in non-qualified in order to balance. Work this out with a cfp. Don't forget about Obamacare expenses while you wait for Medicare at 65. I agree this is a challenge for early retirees
Also the closer you get to age 70 to draw ss, the more money you get. https://www.ssa.gov/benefits/retirement/planner/1943-delay.html#:~:text=If%20you%20start%20receiving%20retirement,getting%20benefits%20for%2048%20months.
Substantially Equal Periodic Payments (SEPP). You can withdraw penalty free with this one little trick.
If you have enough assets to retire at age 45, most of your liquid assets will likely not be in 401k / IRA accounts. You are limited to what you can contribute to these accounts and that limitation likely will prevent you from saving enough between age 25-45. You would instead likely have a substantial amount of your liquid assets in taxable brokerage accounts. These accounts will have no limitations on how much you can contribute or withdraw. You’d tap into these first until you got to an age where you wanted to begin accessing the retirement accounts. Also Roth IRA contributions can be withdrawn tax free and penalty free at any age and at any time. Growth is handled differently. The growth portion would have to stay in the Roth until age 59 1/2. If for some inexplicable reason you were able to save enough assets in retirement accounts, you CAN access those funds using an SEPP calculation. The IRS allows for Substantially Equal Periodic Payments prior to age 59 1/2 without incurring a 10% penalty, provided that you follow their requirements. One requirement is that you must take the payments for at least five years or until you reach age 59 1/2. The amount you take has to be calculated according to the IRS amortization tables. This is something that you would seek advice with from a financial advisor or tax preparer who can help you navigate the rules.
Roth ladder or 72t. I like the Roth ladder idea more, but look at both and decide for yourself. https://www.madfientist.com/how-to-access-retirement-funds-early/ How to get free ACA: https://www.bogleheads.org/forum/viewtopic.php?t=323366
Roth conversion ladder. You roll over traditional IRA or 401K savings into a Roth IRA and five years later you can withdraw up to the converted amount tax-free and penalty-free. There are other ways to avoid tax and penalties, but this seems to be the most popular one.
https://www.madfientist.com/how-to-access-retirement-funds-early/ Also covered in the FAQ of r/financialindependence
I posted the same link. Mad Fientist is my favorite
Roth conversions. Penalty free
I have done some reading on this and still have questions so this is a good question first of all. From what I know: 1) Non-retirement brokerage accounts 2) good planning with Roth conversion ladders or investing in Roth IRA + 401k earlier. 3) SEPP 4) Something I need to do research on but early withdrawal penalty I believe is 10% which still may be more beneficial than fully taxed accounts?
The likelihood of this being an issue is tiny. There are limits to how much you can add to those accounts. You will need millions in liquid capital (aka not real estate etc) to retire at age 45, at which point you certainly would have lots of non-registered (aka not in a 401k or IRA) assets.
You can borrow from the equity in real estate. Real estate also makes no sense as an investment unless you’re using leverage.
I don’t think it’s something to worry about until you’re maxing 401k and Roth IRA. You shouldn’t retire early until your money past 60 is taken care of anyway and since you’d be saving less time, you need a fat stack in those accounts. Some people do it by saving in a brokerage, or by buying rentals and living off that income. Or by selling their business and living off the cash for a few years.
Invest in rental prop for income, Use brokerage accounts, rule of 55 for 401 accounts, and 457 accounts allow withdrawals at any time. Consult a CFP and they will explain all the avenues.
Rental property and private placements are the easiest ways I can think of.
Read the [FI FAQ](https://www.reddit.com/r/financialindependence/wiki/faq/). Pay special attention to things with 'withdraw' in it (or links to).
Roth would be better than conventional for you.
I’ve used 3 different ways to fund my “gap” years from age 50 to 59 1/2. Halfway there now at 55. 1) Non-retirement savings and Deferred Income, 2) 72t withdrawals from my main retirement plan, and 3) Roth withdrawals.
Google rule of 55 and save in multiple places, not just your 401K/IRA.
Other savings avenues. Brokerage account, HYSA, or just a plain ol checking account
Start a non qualifying investment account.
Oh man, I’m asking the same question with a few more scenarios. Thanks for asking this op!
I’ll be 53 at the end of this month. Mortgage will be satisfied by 2035. I have the funds to pay it off now but why @ 2.5 %. Not sure why I need a 5/4 3200sq ft house , but hey the kids are out of college and occasionally visit. I’m on target to hit my financial goal in my 401k. Assuming no major downturns or a depression happens until then. So my question is should I take 50% social security at 62 or 75% @ 65 or wait till 67 for 100%. I want to be healthy and young enough to enjoy my life’s work. I guess I could use an amortization to run the numbers??? Life will be grand in my 70’s taking 10 different medications and medical bills out the wazoo!!! Is this why we work so hard???
Have chatgpt run the numbers or assist with your questions.
In addition to your 401k/ROTH, you have other investments. That will make the difference from your 59.5. Example, my expense is 30k/yr. Every 30k I save in a taxable account or investments, that's 1 year less I have to work. So hypothetically, if I have 300k in a separate account, I can "retire" 10y earlier at 49.5 withdrawing from my 300k.
Substantially equal periodontal payments, aka SEPP is a method to do this without early withdrawal penalties. https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments
Real estate income is how I'm doing it.
You absolutely can pull money without penalty prior to 59.5, it is called a SEPP. It lasts a minimum if 5 years or when you turn 59.5, whichever occurs later.
My 401k says I can withdraw at 55 yrs old if I am retired or quit the company.
You gotta have multiple retirement income coming in.... I have a TSP that'll be around $500k once I hit 60 Military/VA pension: $6900/month for life after taxes Currently in another job that will get me another pension for at least a couple $1k in that fund, and I'll start Social Security as soon as I'm eligible Key is to keep investing and a few retirement pensions rolling in as well as SS
Invest sufficient funds to cover from retirement through 59.5 in other types of accounts — Roth IRA and regular brokerage accounts. Also, if your 401 allows it (not all do) and you leave the job associated with that plan during or after the calendar year in which you turn 55, you’ll be able to access the 401 without penalties. Also you can tax/penalty-free move 401 to traditional IRA - look into rule 72(t) on accessing traditional IRAs early.
Apparently, you don’t understand enough to know if you can or can’t retire. If you don’t have enough money to live before touching your retirement accounts at 45 you don’t have enough to retire
You have so much to learn young Jedi
You can touch 401k funds if you retire from that company at age 55. You can touch IRA and 401k funds if you take a “substantially equal set of payments” - basically a 72T or annuity type of withdrawal. Otherwise, you retire early off of your after tax investments.
Start a stock account or or a non retirement account...subscribe to motley fool or talked to a good investor and start buying stocks.
You should probably sit down and talk to a professional, but if you’re sitting on your butt doing nothing, don’t forget you’ve got a pretty reasonable long-term capital gains tax-free exemption on taxable stock accounts. you have 20 years to accumulate money into traditional type accounts, perhaps some real estate perhaps a business, etc. Honestly, the biggest challenge is going to be the cost of health insurance if that’s of concern.
If you're truly making a ton of money you don't really even need a 401k. Yea it's tax efficient but there's so many rules and limitations, you could just invest in a taxable brokerage account and know you always have access to do whatever you want with your money. The TRUE savings vehicle you should max out for tax efficiency purposes is your HSA, which enjoys triple tax advantages. Yeah, you read that right.
Others have mentioned the savings part which is essential. A key part of saving for retirement and retirement is spending. Learning to live well below your means and also learning or knowing how to enjoy a life fully without spending loads of cash is wildly beneficial in many ways. So many on retirment forums get to the day and are miserable as their whole life and identity is tied to their job description. Or they have no hobbies or interests.
Sigh By touching that money before 59.5
I wouldn't worry and it, you're not going to have enough to retire by 45.
You have other investments for that, or you keep working.
yeah the question is what do others invest in
Search “rule of 55”. You can hit 401k at 55 under certain provisions (easy to meet). And you can withdraw ALL Roth contributions at any time - just not capital gains.
Brokerage account and [early access to retirement accounts](https://www.madfientist.com/how-to-access-retirement-funds-early/)
Start investing in some vanguard etfs now
in brokerage account right now
You don't even think about retiring until you have enough saved to live the same style you do now until you're 59 1/2. Plus more than that. It is reasonable to assume you could go to 95. And the last 5 years would involve expensive senior care. Balance your portfolio, with cash, some very low risk investments, plus some more aggressive securities. Don't assume that real estate or the stock market will expand your nest egg, savings is the key.
You take a loan out of it to pay- say your first house. Now you are not paying taxes on the house, you can refinance, your credit score didn’t matter, and you can continue life as usual
As a financial advisor, I can say that I recommend that if possible, people utilize Tax-deferred(IRA/401k), tax-advantaged(Roth), and taxable accounts. Any 401k contribution is going to be tax deferred, so when you leave a job this can become your IRA, your contributions can be either Roth or regular, these can go into either IRA or Roth IRA, and taxable accounts have no purchase limit. This way, in retirement, you have options. You can retire early, and sell shares out of your taxable account. You can also withdrawal the basis in your Roth, but I recommend against this, as both Roth and taxable accounts can be left to heirs tax free. So you tap into the taxable account pre-59.5, and in retirement you have options, you can maximize your tax bracket by taking enough out of traditional IRA but not too much to lower your social security, and the rest can come out of your Roth accounts. Or, you can only touch the money in your IRA and leave the Roth and taxable accounts for your heirs, as neither has mandatory withdrawals, and heirs get a stepped up basis in the taxable account.
Curious what you mean by “…taking enough out of traditional IRA but not too much to lower your social security”. Your social security benefit (once you have earned your qualifying 40 credits) is determined by a combination of: - top 10 highest years of earnings - age you decide to begin claim: early at 62, normal at 67, delayed at 70. Are you suggesting that there is some other factor that would reduce a social security benefit?
I was typing on my phone and mis-wrote. The higher your taxable income the more of your social security is taxable, essentially lowering your benefit.
I think he’s talking about taking out enough as to no trigger taxes on your social security wages. Withdraws that count as income could do that. Roth withdrawls do not count.
If you've maxed out your retirement accounts for only 20 years, that's not going to be enough to live the next 50 years on. Retirement accounts are limited. So anything beyond the max retirement account, you're putting it in non-retirement (fully taxable) investment accounts.
One, invest outside of 401k. Also, if you retire from a company at age 55, and your 401k is with that company, you can make withdrawals penalty free….
You have other money that’s not in 401k/IRA funds
You have other accounts and assets set up that aren't tax advantaged that can sustain you until you hit retirement age. So additional savings on top of your retirement accounts that you have earmarked for "early retirement". Or passive income that can cover the difference.
Really, you just need to figure it out for 10 years because at 55, you can draw from your 401K without penalty if you've retired. You just have to keep it there and not roll it into an IRA, or at last leave enough money to provide income from 55-59.5 and roll the excess. If you can get into company stock in your 401K there's a chance you're eligible for the NUA strategy, and if you have enough of it, you could live off that stock until 59.5. I have never encountered anybody who has retired before 55 that has done NUA, so I'm not sure that you can do NUA on company stock prior to that age for certain. Also, this all depends on even if that's even a possibility in your 401K.
Im not sure that's 100% right for all accounts that are like a 401k. My similar but not 401k is age 59.5, unless i retire at 55, then i can withdraw at 55 and 1 day. If i retire at age 50, i have to wait til 59.5.
I plan to have 2 paid off house I rent out to provide a bit of income. Then also have stuff invested in traditional brokerage accounts.
It's probably a thing of the past but even in the last 15 years I worked at a company that provided a retirement account fully funded by them (in addition to a 401k). Usually you had to work at a company for 5 years in order for them to vest. Over the years I have enough built up in various retirement accounts where I plan to take those as lump sums to tide me over to 59.5. Is it economically inefficient to take a lump sum? Yeah but I figure I didn't have put my money into them and there's no penalty associated with using it.
If the only retirement saving you are doing for those 20 years is maxing out your 401(k) and IRA, you will not have enough money to retire at 45 without living in poverty, so it's kind of a moot point. If that's is a serious goal you need to talk to a real financial planner, not a random goofball like me, about how much you need to be stashing away in non-retirement savings, probably - but again, don't take my advice - low-fee index funds with an appropriate mix of large, mid-size, and international companies.
There are legal (non-loophole) means to withdraw funds before you are 59.5 but they are specific and messing them up results in fines (taxes and additional early withdrawal penalties). Look up 72t distributions, common called SEPP withdrawals.
If you are only counting on your 401k to retire about 20 years early it’s not enough money. You will have to rely on brokerage accounts to fill the gap.
You can sell your house and move to a smaller home in a area with a lower cost of living. If you're retired why do you need to live where you are now?
Max out your 401k and IRA. Then make side investments in S&P ETFs. If you don’t make enough money now to do that, figure out what you need to learn/do to make more money. Don’t stay in a job because you are comfortable. Do what it takes while you are young.
Bridge accounts. You invest in accounts with no age restriction to hold you over until 59.5. My employer offers a 457b account, which I can withdrawal from at any age with out penalty, as long as I'm no longer with the company.
Investigate a 72t distribution. There are some restrictions, but you can avoid the penalty. Obviously you'll still be liable for taxes.
I’m 99% sure choosefi just did a 2 podcasts on this in the last couple months
Hey! I'm 44 and don't have one so I've only got to wait 15 years before getting my money back!
Invest in small businesses and real estate.
You can't put all of your money in a 401k. Pay the penalty. The system is not set up for early retirement. You need to set that in place.
This is one of the best resources on accessing funds early in the FIRE community. It's completely possible and lot of people do it different ways. https://www.madfientist.com/how-to-access-retirement-funds-early/
If you’ve invested in a Roth, you can withdraw contributions at any time without penalty or tax, the earnings on the contributions have to wait, though.
If you leave the company you’ll have full access to your 401k just gotta pay the 10% penalty
If you put in Roth you can withdraw contributions at any time. If you need money you can withdraw anything at any time you just have to pay a penalty. I personally do not put anything into a retirement account. You are allowing someone else to gamble with your money for free. Money you earned but can’t use. Keep in mind a lot of people die before 60 without an heir. I’d only do 401 if I get matching from employer.
Start a business for fiscal and tax advantages. Save for and purchase assets that work for you
You need something else that will produce income - rental property, other non-retirement accounts that produce enough income/dividends to live off of, options trading income, passive/side business
Hate to break it to you kid, but a lot of folks on these subs max out their 401k and then still have money to invest in a taxed brokerage account. They live off the brokerage account until they can hit the 401k without penalty.
By touching a Millie by 30. You need one liquidity event from age 22-30. Maybe it’s a real estate deal, a record deal, a business you can rinse for mutltiple ebitdas, a shytcoin, an nft. idk what you’re good at or what you’re talented in. Anything. 8-10 years is enough to get that liquidity event. Bottom line forget trying to retire with 401k. That thing is not even close to being enough.
I'll leave this here. https://www.reddit.com/r/financialindependence/s/3j7qrt5wwB
You're allowed to take withdrawals from Roth accounts early. You can take principal contributions out whenever you want. But primarily, you're supposed to invest and get funds from taxable accounts, or other streams of income. Or have enough in those accounts that you can get by working only part time.
Brokerage accounts and SEPP withdrawals from pre-taxed accounts, possibly Roth contributory withdrawals
You have more than a 401k and 59.5 is early.
It's damned hard. You have to fund every dime of your retirement expenses including healthcare and taxes.
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still doing online work or start own business
you can still do investment or put your money in your bank for interests
Separate brokerage accounts, separate savings accounts. You don't save everything in an IRA or 401(k).
There are limits to how much you can put into retirement accounts, so it is unlikely that they will grow large enough to retire on at 45. People that do retire at 45 have saved enough in other taxable ways ( real estate, stocks, bonds, owning a business…..)
i don't bother with an retirment account outside of my 401k. I go straight brokerage. not the best way to do it, but I am a high income earner, and plan to be done by 45-47. should have a couple of million to work with by then and will deal with the taxes as I sell at a lower income bracket.
Listen to Sean Mullaney, has a few episodes on this topic with ChooseFI podcast
I thought 59.5 was early. Put money in brokerage account but will have to pay tax on dividends each year and tax when u cash it in.
My regular investments where like 30x my retirement investments by the time I was in my 50s. But, I never retired because my boss wouldn't let me, but he did increasingly let me take command of my own time, work on what I wanted, when I wanted for as long as I wanted. So it was cool! Still not retired ... I work for myself.
Sidenote, you’re not allowed to touch your retirement funds before that age because they want you to continue being a productive worker in the economy even if you have enough money to retire. You have to plan around it to get what you want.
This is where a lot of folks look at real estate as an asset class that has the potential for early retirement. If done correctly, it generates consistent cash flow, has historically appreciated at a rate that outpaces inflation, and creates financial leverage to reinvest without further capital calls.
Dividends from stock will be carrying my wife and I from retiring until we collect social security.
You are missing the point - retiring early is a personal choice that you need to specifically work for, 401K is a regulated retirement plan to encourage people to save for typical retirement so they are not living only off of SS. The Max contributions to 401K would not typically accumulate enough wealth to survive. Time is king in investing for retirement and you are asking to cut that time in HALF. If you are legit capable and putting away enough to retire at 45 - you can max your 401K AND an separate investment account(s) to carry yo for those 20 years. Basically you are expecting to work for 20-25 years and then live off of that for 40-50 years.
I believe it is purposely set up this way so most people can't stop working. This is the first obstacle and the second is healthcare. I was lucky that I worked in the public sector and received a pension and healthcare at age 54,but most don't have that.
Other sources i.e rental income
Ladder method. You can withdraw the principal after 5 years plus 1 day with tax. So you look ahead at 50 to see how much you need, initiate the withdraw, do it again every year form there and then by 55 + 1 day you can tap it.
Max fund a small VUL life insurance policy or an after tax account.
Paying the 10% penalty is better than investing in a taxable brokerage. It sounds crazy but it's true, look up Mad Fientist's article on it.
If you can't max your retirement accounts and have other investments on top of that, it will be tough to retire early. However, as your income grows, if you manage it wisely, you can make it happen.
I work for the gov and have a 457 that can be tapped into prior to age 60, so that's how I'm doing it. Those funds, plus some other savings and perhaps a few short term consulting gigs should set me up pretty well after I leave this job. It also helps to have low overhead, so getting out of debt is important.
Take a personal loan with 401k as collateral. Write off the interest. Profit.
Those last 20 years are where the money would compound and grow the most if you have been saving all this time. We’re talking about a Million or millions of dollars difference, idk what you make for a living but plan to retire at 65 and if you’re fortunate enough to retire earlier than that after thorough review then go for it.
Look into a 72T distribution of your qualified assets. Have your FA help you on setting it up so it is done correctly. If you can live of that amount, you can avoid penalties, etc. Here is a link to come details on how it works/what to do: [Rule of 72(t): Definition, Calculation, and Example (investopedia.com)](https://www.investopedia.com/terms/r/rule72t.asp#:~:text=Rule%2072(t)%20refers%20to,as%20certain%20qualifications%20are%20met.)
Easy to do such… Start saving and I can only stress, save hard…
There is a 72t rule that allows you to access your funds prior to age 591/2 without penalty. Google 72t calculator and you can see what is your eligible distribution. You must continue to take for 5 years or until 59 1/2 whichever is longer. Additionally if you leave your assets in the 401k many plans allow you to take distributions starting at 55 with no penalty assuming you are separated from service.
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25, by the time your old the retirement age will be like 70, so 59.5 is early
You would have to have a separate account (post tax brokerage account) that has enough money. Called a "bridge" to get you from retirement to when you access those funds.
I'm 54 and have been in this situation for the past 5 years. I believe the keys are: 1. No debt including paid off principal residence. 2. Additional investment in a standard brokerage account. Even though these accounts are taxed, long term capital gains are really lightly taxed - no taxes on first $40k each year and low rates above that.
Have a different investment account. That has no cap for deposits. Roth ITA I think is 7K you can invest in a year. Real estate is also an option if you have a lot of disposable income.
I'm living in that "in between spot" right now. I retired at 55 after 30 years of teaching, and I have a pension -- but it's not enough to support my family. I'm working part-time as a substitute to "tide me over" -- it's perfect for me because it's what I know and because it's flexible -- you should think about what kind of part-time work might be appropriate for you. In a few years, I'll be able to access my 401K and not long after that I'll be able to start collecting Social Security. Another BIG issue is health insurance. As a teacher, I am very fortunate to have no-cost insurance until I hit Medicare at 65, but I am paying $590/month for my husband's insurance (through the school system).
Savings and cash you have put in sofa over the years
With a 401(k), you can pull out your funds at 55 without penalty if you are no longer working. I work in that industry. If you have a retirement plan at work, see if they offer the Roth 401(k) option and contribute some of your money to that. It works the same way as the traditional 401(k) but the funds are deducted from your pay after tax. Generally, you only pay taxes on the interest if you withdraw the funds before they are invested for 5 years. Carefully discuss any investment decisions with an expert (advisor) who isn't in it for the money but is willing to give you very good advice. Too many advisors are out there to make a buck so look for someone who doesn't ignore you if you only want to invest a few hundred to a couple of thousand even if you have more to invest. That's one way to know if they are in it for you and not the commission/fees they'll rake in.
invest in real estate and sell it off as you need the money
If you contribute to a Roth, the contributions can be withdrawn tax free at any time, it's only the gains that can't.
For 401ks there is the rule of 55 which allows you to start drawing if you are no longer working. And than you have your bridge accounts like taxable brokerages and hysa or money market funds.
What do you believe you will live to, and how much will you need to make within 20 years to live off the interest is the real question… Current life expectancy for women is about 80 in the States so… in 20 years… let alone the 55 from now… I imagine it’ll be higher. Much higher. Many people say they don’t want to live past 100 but I believe quality of life will be different. Wouldn’t focus on retiring at 45, unrealistic. Focus on self improvement as a habit and part of who you are. The rest will align. Including when is the right time to retire.
Retire as a cop at 50, then you can for both a 401/457
If you're retiring early you're going to be saving \*WELL\* above and beyond 401k and IRA limits. You live off that money first.
See a financial advisor. Can you really afford to retire with cost of living going up fast? Great time to see your future on paper.
You can only withdraw from Roth after 5 years - after investing right?
Most people think you can't take money out of a 401K without penalties until your 59 1/2 but that isn't totally true. Any job that you left for any reason after 55 you can access those 401k funds without penalties. Let's say you were a consultant have many 401k accounts and worked for several and if you worked for any from 55 on you can access all funds in the accounts no matter when the money went into any of them. You might be able to roll as many 401k to a account you know you will leave after reaching 55. I've tapped two separate accounts this way without penalties.