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Hi! Need Plan to cover 55 to 59 1/2
Old 01-26-2014, 11:16 AM   #1
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Hi! Need Plan to cover 55 to 59 1/2

Hi Love this site! Some Friends and Family think I am crazy to think I can retire at 55 (class of 2016), but my bucket is full. They keep expecting more and more at Megacorp. I will be 53 this week and want to retire at 55 when Megacorp health plan kicks in for retirees with 75 points (55 and 20 years of service; I hit 20 years in 2014). I would consider the class of 2014 if not for the retiree health care. I am single, no kids and parents are FI, so its all about me. They say they are spending it all, so I don't plan any inheritance in my FIRE plan assuming they do. Current salary is $125K with bonus. I have calculated that I live on $33K a year after reviewing the last 18 months of spending (income tax and healthcare are not included as that is taken out of my take home pay, but includes essentials such maid and lawn care LOL). I also took out mortgage payments as the house is paid off as of 11/2011 (maybe shouldn't have done that and saved more cash / after-tax, but oh well its done now). I calculate I will increase spending to $51K ($43K essential which includes income taxes and health care, $8K discretionary for travel, entertainment, and unexpected expenses) from 55 to 59 1/2. I will have a low income tax rate as the income I will have will be some small dividends, interest on bank savings account, and income from farms I own ~ $7K. (This income will continue through retirement) Last year I maxed out my 401K / 401K Roth contributions and also saved 9% in an after tax account that is part of the options with the 401K plan. My concern is that I may not have saved enough in after tax / cash to fund the time from 55 to 59 1/2 without selling my current home in an Atlanta suburb right at retirement. I will probably sell it down the road though to move to lower cost of living location (not sure where). but don't want to be "forced" to do so right away. That is why this year I am not maxing out 401K contributions in order to build funds I can use to retire at 55.

I currently have $94K in cash in the bank and $12Kin a Roth IRA at same bank that makes very little (considering opening a Vanguard account and moving it there). My 401K has $600K with a plan to add 4% myself which Megacorp matches plus 6% Megacorp contribution for total of 14 % each year until 55 yo. I also have $7K in my 401K Roth and $12K in after-tax in Megacorp plan. In addition I have $180K in a tIRA from a roll over from previous Megacorp 401K at an Insurance /Brokerage company with a fee of 1% (I know I need to move that to Vanguard, too.) Based on FIRE, Financial Engines, and my spreadsheet I should be in good shape after 59 1/2 with conservatively $1.1 M 401K plus tIRA (assumed 6% growth, AA 75/25 and moving down to 65/35 at RE, 3% inflation, live to 90yo). I also have a non-COLA pension that I can take as a lump sum of $70K to invest or use for funding FIRE and pay the taxes at 55 (annuity is only $300/month). In addition I plan to take SS at 62, to keep withdrawals at 4% except for the 2 to 3 years from 59 1/2 to 62yo which will be more like 5%.

I have learned a lot from this forum and it has really helped me put together a robust Exel spreadsheet to plan to FIRE. That is what has lead me to be concerned about my funds to cover from 55 to 59 1/2. To cover FIRE until I can withdraw from 401K, what do I don? Do I forego 401K contributions beyond the 4% to get the match and put everything into the 401K Roth, the Aftetax fund, cash or what? In addition, do I roll over my current IRA to a Roth at Vanguards or what? Can I assume I can pull contributions from any Roths (IRA or 401K) at 55 without penalties? I should have around $34K each year for 2 years to invest somewhere. I just don't know what to do to help with expenses before 60. When I do sell my house and downsize I should have $200K to spend or invest after buying a smaller house, so that is still an option.
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Old 01-26-2014, 11:26 AM   #2
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..... That is what has lead me to be concerned about my funds to cover from 55 to 59 1/2. To cover FIRE until I can withdraw from 401K, what do I don? Do I forego 401K contributions beyond the 4% to get the match and put everything into the 401K Roth, the Aftetax fund, cash or what? In addition, do I roll over my current IRA to a Roth at Vanguards or what? Can I assume I can pull contributions from any Roths (IRA or 401K) at 55 without penalties? ......
Check with your 401K custodian, mine allowed penalty free withdrawals at 55 if you were retired. Some 401K plans allow this, some don't. It is worth a phone call to find out.
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Old 01-26-2014, 11:28 AM   #3
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My plan B is to take withdrawls(56-59 1/2) from 401k, penalty free. Look at your SPD(Summary Plan Description). Not all 401k allow for this, some have strict limits. Mine has a hardship provision for 55 or older and terminated from service. They do withold 20% for taxes, but no penalty for early withdrawl. Your other option is a 72t. I'm sure other folks will have some great ideas too.
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Old 01-26-2014, 11:29 AM   #4
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Are you sure that you can't take distributions from your 401k at 55?

I believe that a lot of plans will let you.
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Old 01-26-2014, 11:34 AM   #5
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Agreed with above. Both of our 401Ks allow 55 withdrawal.
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Old 01-26-2014, 11:52 AM   #6
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Thanks for the input. However, from what I have read in the plan, you can only take funds prior to 59 1/2 for hardship, but I will re-read it.

Assuming I can't, what do I do with the $34K have each year to invest after I have satisfied the 4% for the match?
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Old 01-26-2014, 01:03 PM   #7
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After tax account?
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Old 01-26-2014, 01:38 PM   #8
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Thanks for the input. However, from what I have read in the plan, you can only take funds prior to 59 1/2 for hardship, but I will re-read it.

Assuming I can't, what do I do with the $34K have each year to invest after I have satisfied the 4% for the match?
Recommend double checking this as well by talking all options with your 401k provider. I

72t is reasonable option if not

Overall I think you can do it. Just a few choices then pull the trigger. I'm a bit more optimistic and less financially conservative than most on this board however.
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Old 01-26-2014, 01:59 PM   #9
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I got a bit lost in all of the numbers, but it sounds like you plan on pulling out 5% from 59.5 until 62, then 4% after, and an unclear plan where to get funds from 55 to 59.5. Presumably those would come from early withdrawal of the 401K or IRA through a 72t as others have mentioned, which reduces the balance on those so you'd actually be taking more than 5% and then 4% from those. Taking that much starting at age 55 sounds a bit risky to me.

Back to your original question, another option is to take a new mortgage on your house while you still have income and can qualify. You admitted that paying off the mortgage and depleting your after-tax money may have been a mistake but it is a decision you can change. I don't know if a 7 yr balloon mortgage still exists, but that seems ideal for a short term influx in cash to get you to 59.5, at which point you can pay it off with your IRA/401K.
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Old 01-26-2014, 02:16 PM   #10
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...I also have $7K in my 401K Roth and $12K in after-tax in Megacorp plan. ...
When I retired I had $23k associated with after-tax in my 401k. I found out that only the original contribution, about $11k, could be moved to a Roth IRA. The appreciation is considered pre-tax. I don't know if it is possible to move that after-tax money over to a Roth within the 401k, but if it is, it would be worthwhile. Perhaps someone here on the forum knows the answer?
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Old 01-27-2014, 04:09 PM   #11
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Congrats first off, you're almost there. My 2 cents:

401k can be accessed at age 55 but has a couple of small gotchas' - you can easily google the requirements.

Back to your original question. With $51k per year expenses you'd need $255k to cover you from age 55 to 59.5. Of that you have about $105k between cash and ROTH 'contributions' already. With the savings for the next two years you have another $70k. You may also have other small income (farms?) in those 5 years and let's add in a modest return from a safe CD - let's call that $40k give or take. So now you have a total of $215k and you're looking at a deficit of $40k or approx. $8k per yr? Am I correct so far? If so how would you bridge that small gap? extend work for another year? take on a part-time job? reduce spending by $8-10k per year? or do a 72t/SEPP withdrawal or access the 401k at 55 (provided you meet the requirements).

I would also suggest posting in the 'Fire and Money' section.
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Old 01-28-2014, 07:36 AM   #12
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Thanks for all of your input. I have alot to look at. OMY or sell my house sooner than planned are maybe my best bets, but I will run the numbers to see if there are other options and keep researcing 401K access at 55. Thanks again.
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Old 08-22-2015, 10:34 AM   #13
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Ok, I decided to update my story. Thursday I found out my job is being eliminated. I have been given an option to take a 40 week severance package or a lower level job, but keep my same salary. I am ready to go, so the severance sounds good; however, I am just over 5 months from my 55th birthday when I will be able to get retiree medical benefits. I have asked them to check if I will still get that benefit. I hope so as my health insurace would be less than 300 per month on that plan. I am really afraid they won't though.


Another update is you guys were right. I can access my 401K at 55, so that adds another piece to the puzzle.


My question is - if they come back with me being able to get the medical benefits with the the 40 week severance package, should I take it or stay until January to have access to the 401K?I have already decided that I will be selling my home next year, so that is a change from my orginal post. The proceeds after downsizing will cover my costs from 55 to 59 1/2, so that is now not an issue. It would nice to have the 401K access, but I am not sure it worth working 5 to 6 more months and leaving the 40 week severance. Any thoughts?An aside, the job they have offered will be working for a current peer that happens to my neighbor across the street. He's great, but talk about awkward! Of course one can deal with anything for 5 to 6 months.

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Old 08-22-2015, 10:44 AM   #14
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If they offer the health bennies along with the 40 weeks I would jump at it. You can still take money from the 401K w/o penalty with some rules.
No bennies, I would definitely work the extra 5 months.....
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Old 08-22-2015, 11:11 AM   #15
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Definitely try to get the retiree medical as part of the severance negotiation.
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Old 08-22-2015, 01:23 PM   #16
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Old 08-22-2015, 01:35 PM   #17
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When your job ends, how far will you be from your 55th birthday? Also, check this but IIRC the criterion is that you leave service in the year that you turn 55 so if my recollection is correct that would mean that you would qualify for penalty free withdrawals if you can stay on until January 2016.

Perhaps they might be willing to structure the severance as salary continuance instead. Even if it was less than 40 weeks if it could keep you on payroll and "employed" through your 55th birthday so you could get the retiree medical bennies and avoid early withdrawal penalties on your 401k then that would be good.

Alternatively, might they let you go on to another job at your current pay until you turn 55 and then let you leave and pay you whatever remains of the 40 weeks (for example, perhaps 20 weeks severance). That might be a win-win in that they woudl at least be getting something of value for the remaining time that you are there rather than it being empty money.

I wouldn't think that it would hurt to ask.
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Old 08-22-2015, 01:46 PM   #18
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When your job ends, how far will you be from your 55th birthday? Also, check this but IIRC the criterion is that you leave service in the year that you turn 55 so if my recollection is correct that would mean that you would qualify for penalty free withdrawals if you can stay on until January 2016.
Looks like Jan 2016 gets you the exception:

Tax Topics - Topic 558 Additional Tax on Early Distributions from Retirement Plans Other Than IRAs

"The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55,..."
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Old 08-22-2015, 01:49 PM   #19
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Great. And it sounds like the OP turns 55 sometime in January, (5 months from now) so if he can negotiate a way to stay until his 55th birthday then he might be able to have his severance cake and eat it too.
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Old 08-22-2015, 01:56 PM   #20
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If they offer the health bennies along with the 40 weeks I would jump at it. You can still take money from the 401K w/o penalty with some rules.
No bennies, I would definitely work the extra 5 months.....
X2 on this. If you can negotiate the health benefits, take it.

I know in MA you could take the severance and then collect unemployment for 1-2yrs. I don't know about where you live, but it certainly sound s like that would help you bridge the gap.
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