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Working towards ER by 58 (4 years from now)
Old 08-01-2007, 05:47 PM   #1
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Working towards ER by 58 (4 years from now)

Hi, All Ė Iíve been lurking for some time Ė I finally worked up the courage to post. I feel I have learned a lot from this forum over the last few years of and want to thank you all.

I just turned 54 and am hoping to have socked away enough to retire by age 58. I will have a small pension (non-COLA) from a previous job once I turn 65, and plan to start SS at 62. Other than that, income will have to come from my IRA, Roth IRA & 401K plans. My current employer does not provide a defined-benefit pension Ė I understand this is rare for companies to provide now.

I have been maxing-out my ROTH and 401Kís for a few years now, and putting away as much extra in non-tax-deferred plans as I can.

From what I have learned here so far, I understand I should plan on using non-tax-deferred funds in my first few years of retirement, and hold off on using any tax-deferred funds as long as possible.

I feel I have a pretty good handle on my expenses, except for that biggie - health care. My mortgage will be paid off by my planned retirement date. I think health-care probably then will be my greatest single expense. My employer currently allows retirees to continue health coverage under the employee group plan, but at full cost to the employee. I will probably plan on doing that unless some more affordable option comes up by the time I retire.

I think I will be able to reach my target as planned, as long as the market doesnít tank.

I have my non-tax-deferred funds mostly in CDís and a few individual stocks (the individual stocks are ESPP plans from current & a previous employer). My tax-deferred funds are allocated about 60/40 Stock/Bond mutual funds. I have 401k plans from two previous employers and my current job. I have been procrastinating on rolling over the old 401Ks to IRAs, but plan to do that in the next few months.

I am planning to work on setting up a ladder of CDís and bonds to cover my first seven years of expenses after retirement, which will include selling the individual stocks over the next few years as the price is favorable.

Iíve also been researching places I might be willing to relocate to. I currently live in an area where housing and other costs are relatively high (New England). Moving to an area where housing and utilities are less would allow me to increase my nest-egg (from selling house, buying a cheaper place).

Iíve run FIRECALC on various scenarios and created several spreadsheets to explore my various options. I am grateful to have this forum to turn to for ideas and information. When I have a bad day at work (unfortunately these seem to be becoming more frequent lately) I seem to spend a lot of time here reading posts and wishing I had only started saving seriously sooner.
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Old 08-01-2007, 05:57 PM   #2
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Welcome to the board. Glad you finally posted on the board. It is not as painful as it might seem.

It looks like you are well on your way to FIRE at your chosen time. Keep the faith and keep your eye on the goal. RE as soon as you can. The time you spend doing what you want rather than what someone else wants you to do is worth the price of ER.

Good luck and welcome to the "other" side of the board.
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Old 08-03-2007, 12:12 AM   #3
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I'd like to welcome you also. Your plan is very close to our (DH and yours truly) way of funding retirement.

Jump in, hang on and share your thoughts.
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Old 08-04-2007, 05:34 PM   #4
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Thanks very much to you both!
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Old 08-04-2007, 05:49 PM   #5
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Gettingthere, welcome aboard! It sounds like you've got the plan and are on schedule. Congratulations on that!

You have some time to work on your withdrawal strategy, but keep in mind that if you leave your job in the year you turn 55 or greater you can use your 401K funds without penalty. You might end up deciding to hit the 401K up to the top of the 15% federal tax bracket, even if you have after-tax savings, just to get some money out relatively cheaply.

Again, glad to see you on the board! We love seeing people on track, on schedule, and on their way to ER.

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Old 08-06-2007, 12:59 PM   #6
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<You have some time to work on your withdrawal strategy, but keep in mind that if you leave your job in the year you turn 55 or greater you can use your 401K funds without penalty. You might end up deciding to hit the 401K up to the top of the 15% federal tax bracket, even if you have after-tax savings, just to get some money out relatively cheaply.>

Coach, this is something I do not really have a good understanding of, although I have seen it mentioned here on this board.

I was thinking I should take the opportunity to change as much as possible of my 401K money (rolled first to IRA) into ROTH IRA funds as long as I could still stay under the 15% tax bracket threshold.

To withdraw the 401k funds when retiring at or after age 55, I would, what, leave that money in the employer's 401K plan and make withdrawals from there?
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Old 08-06-2007, 01:13 PM   #7
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<You have some time to work on your withdrawal strategy, but keep in mind that if you leave your job in the year you turn 55 or greater you can use your 401K funds without penalty. You might end up deciding to hit the 401K up to the top of the 15% federal tax bracket, even if you have after-tax savings, just to get some money out relatively cheaply.>

Coach, this is something I do not really have a good understanding of, although I have seen it mentioned here on this board.

I was thinking I should take the opportunity to change as much as possible of my 401K money (rolled first to IRA) into ROTH IRA funds as long as I could still stay under the 15% tax bracket threshold.

To withdraw the 401k funds when retiring at or after age 55, I would, what, leave that money in the employer's 401K plan and make withdrawals from there?
gettingthere, here's a link to some information on getting penalty-free access to retirement funds before 59 1/2. It talks about both IRAs and 401k type accounts.

I'll leave any thoughts on your 401K-to-IRA-to-Roth IRA idea to others more knowledgeable than I.

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Old 08-06-2007, 01:18 PM   #8
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I suggest that we have a link to or a discussion of the 72-T (early IRA withdrawal) topic in the best-of section.

This topic comes up over and over.
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Old 08-06-2007, 02:25 PM   #9
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I suggest that we have a link to or a discussion of the 72-T (early IRA withdrawal) topic in the best-of section.

This topic comes up over and over.
Thanks MasterBlaster. I will forward your request to the Moderator's area to add it to the (growing) list of Best Of... topics.

I agree that we need a place to put some basic links of this type.

Here is a link to get folks started on 72(t) topics. Welcome to 72t on the Net
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Old 08-06-2007, 02:38 PM   #10
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Gettingthere- I like your avatar. Is it stained glass?

Ha
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Old 08-06-2007, 03:27 PM   #11
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, but keep in mind that if you leave your job in the year you turn 55 or greater you can use your 401K funds without penalty.
Coach, are you sure? I think it only applies when you retire in the year you turn 55, not before, and NOT AFTER. In other words, it won't work if you retire when you're 56, 57, 58, 59.

That's how I understand it (it does not apply to me, because I will bail out before 55).
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Old 08-06-2007, 03:33 PM   #12
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Coach, are you sure? I think it only applies when you retire in the year you turn 55, not before, and NOT AFTER. In other words, it won't work if you retire when you're 56, 57, 58, 59.

That's how I understand it (it does not apply to me, because I will bail out before 55).
I believe Coach is correct. You can take most 401k distributions after you reach age 55 or later without penalty as long as you take the distribution from the same institutition who holds your $$$ in the plan. If you move it, you may have to pay a penalty unless you wait until you are age 59.5. The key is you have to RETIRE and cannot work for the same company or you will get hit with the penalty.

As always...contact your plan administrator for your plan details instead of just going with advice from this or any other forum.
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Old 08-06-2007, 03:56 PM   #13
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Coach, are you sure? I think it only applies when you retire in the year you turn 55, not before, and NOT AFTER. In other words, it won't work if you retire when you're 56, 57, 58, 59.

That's how I understand it (it does not apply to me, because I will bail out before 55).
Sam, that's interesting, because I understood it the way you do myself for the longest time, until someone enlightened me. And IRS PUB 575 seems pretty clear:

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:
  • From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),
Bailing before 55 sounds like a great way to moot the question, though! You're a wise man.

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Old 08-06-2007, 04:43 PM   #14
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Thank you Coach and SteveR.

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Bailing before 55 sounds like a great way to moot the question, though! You're a wise man.
I have just 4 words to add: Men plan, God laughs.
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Old 08-06-2007, 04:56 PM   #15
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Here'a another link that you can use to help plan which account to draw against each year.

Retirement Calculator
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Old 08-06-2007, 05:43 PM   #16
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Gettingthere- I like your avatar. Is it stained glass?

Ha
It is art by M.C. Escher. I am not sure of the medium. He did a lot of a similar nature - filling space with identical forms - or graduated similar/related forms. Most I find pleasing to look at, altough he did some pretty disturbung stuff as well.

You can find more by googling "escher tessellations" - a couple of links:

http://www.mcescher.com/

Totally Tessellated: Escher's Tessellations, page 1/12
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Old 08-06-2007, 05:48 PM   #17
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I have just 4 words to add: Men plan, God laughs.

He seems to do a lot of laughing where my plans are concerned....especially these last few weeks.


Thank you all for your input. I will check out the links.
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Old 08-06-2007, 07:34 PM   #18
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He seems to do a lot of laughing where my plans are concerned....especially these last few weeks.
That's ok. 2 or 3 more days like today, and let's see who laughing.
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