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72-T Question
Old 12-31-2006, 12:52 PM   #1
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72-T Question

A question for those who ER'd before 59 1/2. What did (or do ) you do for income?

I will be 49 next month (DH will be 49 next April). I took an early out in Nov. 2003 and rolled pension and 401k into an IRA. Anyway, within 3 months I found another FT job with a goal of only working 5 years before I ER'd for good. So, today I am looking at less than 2 years of FT work. I also teach pilates/yoga/Spin classes PT about 5 hours a week. I would like to increase to about 25 hours a week when I FIRE. DH would like to retire at 55 (he works for the post office and is on FERS). He would like to leave earlier, but doesn't want to take too big a hit on his pension. Not sure if he would pursue PT work or not.

I make significantly more than my DH...so, we would need to adjust SOL, even if I can increase my hours of PT work. Then, if he retires at 55, we would need to adjust again.

I have used various calculators and we should be fine once we hit 59 1/2 based on our IRAs and 401ks. But how do you get from 55 to 59 1/2?
Do most folks use the 72-T option or do you tap into other sources?

We have the typical emergency reserve and some other money set aside outside of our tax deferred accounts, but not enough to get us from here to there. We follow the LBYMs lifestyle, although we could tighten up a bit more if needed. We just finished building our future retirement home on Whidbey Island (no mortage), but we still carry a mortgage on our primary residence (currently paying extra to pay off early). Don't want to bore you all with too many more details....

Would love to hear how some of you ER'd before 59 1/2.
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Re: 72-T Question
Old 12-31-2006, 12:54 PM   #2
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Re: 72-T Question

Quote:
Originally Posted by Dog
Do most folks use the 72-T option or do you tap into other sources?
It's not mainstream yet, but Roth contributions can be withdrawn anytime for anything. All the other withdrawal caveats pertain to the profits on those contributions.

There are also loopholes for 401(k) withdrawals when the retiree leaves at age 55.
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Re: 72-T Question
Old 12-31-2006, 02:13 PM   #3
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Re: 72-T Question

The key for us is to "piece together" an income we can live off of and be happy with. DW still works 20 hours per week and I make a little here and there. Add to that some dividends and interest and we are getting close.

Back in July, we began tapping into one of our retirement accounts with the "substantially equal periodic payments" 72-T thingy. We did this after a fair amount of research and didn't do it till we were sure we could live with it for a few years (with no changes...per the IRS guidelines.) The retirement account is at Schwab and I just make sure there is enough cash in it for the deductions (actually they are just transfers to our Schwab One brokerage account.) We have 20% of that withheld for taxes and the rest sits in our Schwab One account till we need it for ?? Pretty slick.
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Re: 72-T Question
Old 12-31-2006, 04:23 PM   #4
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Re: 72-T Question

I am, still grappling with the same issue. I am 52 and pulled the ER plug at 50. I have been living on after tax investments for the last 2 years. I have enough to make it to 59 & 1/2 but it may be too tight for comfort. No fun in that!!! Debating selling out the McMansion and freeing up 100K after buying a 2000 sq foot free & clear normal size home. Or, I can split the IRA pot down and do a partial 72T for the 5 years. I just get a bit nervous over being locked in by rules. Worse that can happen as it sits right now is needing to take out 20 to 40K during the last year before being able to access the IRA monies and paying uncle fed his 10% penalty. Lots of options to sort through!

Will you be keeping the main house or will letting it go and fulltime it on Whidbey work out and possibly eliminate need for 72T?
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Re: 72-T Question
Old 01-01-2007, 11:56 AM   #5
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Re: 72-T Question

I retired 3 months ago at 48. About 85% of my investment savings are in
my IRAs, 90% of which are in my big IRA. I started taking 72t distributions
in 2006 (annual recalc method) on the big IRA, and will use my after-tax
account to smooth out any bumps. My accounts are generally 95% or more
in solid, dividend paying stocks, and the dividends in my large IRA roughly
cover the current distribution. The 72t withdrawal plus the dividends in my
taxable account are easily enough to live on currently. Any extra not consumed
by travel or other hobbies will be used to pay the taxes to convert the smaller
IRA into Roth or just to beef up the aftertax account.
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Re: 72-T Question
Old 01-01-2007, 02:22 PM   #6
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Re: 72-T Question

"Will you be keeping the main house or will letting it go and fulltime it on Whidbey work out and possibly eliminate need for 72T? "


Crazy Connie,
We will stay in the primary residence for a few more years due to the commute from Whidbey to the mainland (involves a ferry). DH may be willing to do the commute for his last few years of work. We are thinking we will rent the primary residence using the rent to pay off the mortgage. DD would like to buy the place as it use to be DH's parent's home and she wants to keep it in the family. Not sure if she will be able to swing it or not, so we will hold on to it for now and evaluate the situation in two years.
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Re: 72-T Question
Old 01-01-2007, 02:41 PM   #7
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Re: 72-T Question

Quote:
Originally Posted by Dog
"Will you be keeping the main house or will letting it go and fulltime it on Whidbey work out and possibly eliminate need for 72T? "


Crazy Connie,
We will stay in the primary residence for a few more years due to the commute from Whidbey to the mainland (involves a ferry). DH may be willing to do the commute for his last few years of work. We are thinking we will rent the primary residence using the rent to pay off the mortgage. DD would like to buy the place as it use to be DH's parent's home and she wants to keep it in the family. Not sure if she will be able to swing it or not, so we will hold on to it for now and evaluate the situation in two years.
I know the ferries there as I lived in Snohomish for a few years and worked in downtown Seattle. The potential of the home sale in town with the prices may provide you more than enough th see the gap zone from 55 to 59.5. If daughter wants to buy but can not qualify in the market you might explore a carryback where she pays you a monthly intrest equal to market. She keeps the family homestead and you have a decent cash flow which reduces need for huge cash stash. You have options to explore. Also, if Whidbey home is free & clear your needs for income would not be that great for 4.5 years. Or, take 72T on only a portion of the IRA, that combined with PT work and income from Seattle home should make a comfie lifestyle.

Also, keep in mind that many expenses go down once you have time to do things for yourself. Cooking vs eating out, daily commutes, dry-cleaning, car insurance etc..
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Re: 72-T Question
Old 01-01-2007, 03:09 PM   #8
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Re: 72-T Question

We plan to retire at 55 also (currently 49). Because we have been planning this for quite some time, once we maxed out all pre-tax contributions, we invested a lot into taxable mutual funds. Our pension plus these mutual funds should carry us well into our 60s.

Of course, now the dividend and capital gain tax bite is starting to hurt (I have my own question to post about that later ). I know I looked into the 72-T rule when I thought of retiring at 50, but am hanging on until 55 to get the medical insurance. As long as your IRA has enough to cover your life expectancy projections, I wouldn't hesitate to use it.
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Re: 72-T Question
Old 01-03-2007, 08:24 PM   #9
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Re: 72-T Question

Quote:
Originally Posted by crazy connie
I know the ferries there as I lived in Snohomish for a few years and worked in downtown Seattle. The potential of the home sale in town with the prices may provide you more than enough th see the gap zone from 55 to 59.5. If daughter wants to buy but can not qualify in the market you might explore a carryback where she pays you a monthly intrest equal to market. She keeps the family homestead and you have a decent cash flow which reduces need for huge cash stash. You have options to explore. Also, if Whidbey home is free & clear your needs for income would not be that great for 4.5 years. Or, take 72T on only a portion of the IRA, that combined with PT work and income from Seattle home should make a comfie lifestyle.

Also, keep in mind that many expenses go down once you have time to do things for yourself. Cooking vs eating out, daily commutes, dry-cleaning, car insurance etc..


Small world - my husband works out of the Snohomish Post Office. We actually live in Mukilteo which is about 25 miles north of Seattle and I work in Everett.
We are lucky to have options...but sometimes more choices just makes a decision harder. (am I whining?)
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Re: 72-T Question
Old 01-03-2007, 11:02 PM   #10
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Re: 72-T Question

Quote:
Originally Posted by Dog


Small world - my husband works out of the Snohomish Post Office. We actually live in Mukilteo which is about 25 miles north of Seattle and I work in Everett.
We are lucky to have options...but sometimes more choices just makes a decision harder. (am I whining?)
No. You are not whining. We go through life discussing many things in our society. Money discussions and decisions are virtually taboo. You have a spouse and perhaps 1 or 2 intimate friends or family members to share with. These are BIG decisions and many options to explore. Take the time to do it right. It is very important and the bad mistakes are difficult to bounce back from once the earning capacity is history.

I really wish we could get together in various cities to have real dialogue on these issues.
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Re: 72-T Question
Old 01-04-2007, 09:37 AM   #11
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Re: 72-T Question

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I really wish we could get together in various cities to have real dialogue on these issues.
As entertaining as the Vanguard Diehards make their conventions seem, I don't think convention centers have an "Ignore Poster" feature.

But everyone would have fun looking around the room and trying to figure out who's who before the nametags are unveiled...
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