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32 plan to retire at 55
Old 08-04-2015, 03:39 PM   #1
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32 plan to retire at 55

Hi, due to some recent events in my life I've decided to put a more firm plan in place for my retirement. I've always considered myself a saver with decent personal finance acumen, but would love to hear feedback on my situation and plan to retire at 55.

I'm 32 right now, giving me a horizon of 23 years to reach my retirement goal. I have a wife and twin 1 yr old boys and we plan to have at least 1 more child in the next few years.

I own 2 rental properties with about 100k in equity between the both of them with total rents of 2300 (500 net after mortgage pmt) with a remaining term of 25 years.

I just purchased my primary residence with a note of 360k for 30 years, the purchase appraisal came in at 510k, so about 150k in equity there.

My wife stays at home with the twins but will go back to work when they start going to school in a couple of years. I anticipate she would earn about 30k per year. I currently earn 110k working in corporate finance as an analyst and can reasonably expect 3-5% annual increases.

I contribute 20% of my salary to my 401k (including employer match) which has a balance of 100k. I also put 2k per year in a Roth IRA that has a balance of 20k. I have a taxable brokerage account with 15k that I do not contribute to and view it as more of an emergency fund. Most of these funds are invested in index funds or high growth mutual funds.

My saving and checkings accounts amount to 10k, which is currently lower than I'd like due to the down payment on the home we just purchased.

Each of my boys have 529 college accounts with 10k in them, I contribute 100 per month for each.

My goal is to have 2.5M in liquid assets (not including real estate) by the time I reach 55.

I think if I continue with my current savings rate I should be close to that goal. One of my concerns is that if I retire at 55 will I have trouble accessing my 401k and Roth IRA funds? I'm not sure of the rules on that.

Any feedback is welcome. Thanks!
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Old 08-04-2015, 05:21 PM   #2
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Search Roth IRA ladders for ways to get at your tax advantaged money prior to 59.5. The Mad Fientest has a good read on it that's easy to understand.
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Old 08-04-2015, 05:25 PM   #3
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Under current law, you can get your Roth IRA contributions and conversions back at any age as long as the Roth IRA has been open 5 years. Since this money has already been taxed, no income tax will be due nor penalty will apply.

The growth, however, will need to wait until age 59 1/2 to avoid jumping through hoops (ie 72(t) 401k/rule of 55 etc.).


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Old 08-04-2015, 06:16 PM   #4
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Quote:
Originally Posted by gauss View Post
Under current law, you can get your Roth IRA contributions and conversions back at any age as long as the Roth IRA has been open 5 years. Since this money has already been taxed, no income tax will be due nor penalty will apply.

The growth, however, will need to wait until age 59 1/2 to avoid jumping through hoops (ie 72(t) 401k/rule of 55 etc.).


-gauss

To clarify each conversion has it's own 5 year clock on taking conversion without the penalty.


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Old 08-04-2015, 07:13 PM   #5
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Welcome. One key part of FI is the amount saved, but your expenses are also key. Make sure to track them carefully for some time to understand how much you spend, where you could cut back if necessary and which expenses might change in retirement.
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Old 08-04-2015, 07:53 PM   #6
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Welcome to the forum! I started working at age 32 and have the same rough target of 55.
I am now 40 and just broke the two comma club earlier this year.

I found that contributing to both mine and my wife's Roth IRA and my after tax 401(k) allows me to put away >$22k a year into Roths.
I am projecting that I will have about $400k in Roth contributions to draw down when I ER. Combining this with a Roth rollover ladder when I ER will give me a good start to cover me until 59.5. I have also started the Roth rollover horse race strategy to give me even more Roth assets when I ER.
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Old 08-05-2015, 01:17 PM   #7
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Under current law, you can get your Roth IRA contributions and conversions back at any age as long as the Roth IRA has been open 5 years. Since this money has already been taxed, no income tax will be due nor penalty will apply.
Actually, you can get your Roth IRA contributions back at any age, period. There's no 5 year requirement. You could contribute to Roth IRA today and withdraw your contribution tomorrow without having to pay any taxes or penalty.

There is, however, a 5-year holding period for each conversion.

The other 5-year rule is for earnings. You must be at least 59 1/2 and the age of your earliest Roth IRA must 5 (tax) years before you can withdraw earnings tax and penalty free.
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Old 08-05-2015, 07:05 PM   #8
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Also if you turn 55 if you are employed by a company and are participating in the company’s 401(k) plan and you leave employment with that company at any time during or after the year in which you reach age 55, there will be no penalty for taking distributions from the plan.

However if you are like me (who retired at 55 though I started saving a bit later than your 32 since a black Monday and divorce and took me down until I was about 35) your 401K/IRA are unlikely to be enough and you will likely need taxable accounts which you would likely want to draw down first anyways.

3 kids are going to be the biggest problem to this IMO, unless they are paying their own way through college which doesn't seem typical these days and I only imagine it gets worse
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Old 08-12-2015, 07:18 PM   #9
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I'm in a very similar situation as you... 30, married, 1 child, 2nd on the way.

My primary suggestions would be to max out tax deferred accounts and find holes in the budget for additional money to invest. It sounds like you're hitting the $18,000/yr on the 401k, and that's great. Like some others mentioned, the Mad Fientist has some good articles on Roth ladders. With this in mind, you may want to consider doing Traditional IRA's to lower your tax burden. Between you and your wife, you have $11,000 of space there. This is one area I've also been heavily investigating, as I've always been more inclined to max out the Roth.

If you continue on your current pathway, you'll need ~9% annual return to reach $2.5M at 55. Certainly not impossible, but I'd personally be more comfortable with a lower "needed" return to hit my goal number. That's where finding holes in the budget helps. Keep socking it away.
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Old 08-12-2015, 09:41 PM   #10
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I didn't start getting real serious about saving money until I was about 34. I then started maxing out savings into my tax advantaged accounts and saving into a taxable account. Twenty years of focused savings has put me and my wife in a good position at age 55. We're not at the finish line yet, but we're close.

Set up an investment plan you and your wife are comfortable with, and save as much as possible.

You should be in good shape by 55.
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