How to retire early with all $ in IRA/401(k)?

[lwbarry]

I'm crossposting this on the simpleliving.net discussion forums under the "Money" heading.

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First the basics: I'm 28 and trying for early retirement. I make $36,500 per year and have no debt. I rent an apt. I'm maxing out Roth IRA and 401(k)--30% per year to 401(k) with 5% employer match. I minimize expenses and am a good saver.

Current IRA/401(k) balance $22K total (100% Vanguard Index 500)
Money market balance $9K (thinking about buying some I-bonds)
$3K in taxable 500 index fund
Money market balance is maintained for emergency expenses and to save for down payment on house if I decide to purchase.

At my current respectable but not extremely high income level, my total yearly retirement account contributions (~$13K) make up a significant portion of my total investment dollars. I "only" have $300/month to invest outside of IRA/401(k).

My question/concern is: At say age 40, if I have enough to retire, the vast majority of it will be in retirement accounts that I can't access without penalty till I'm much older. What to do?

If I fully fund IRA/401(k) and put the other $300/month in money market toward a down payment, then I'm not doing any retirement investing outside of my retirement account. Is this a bad thing since I want to retire early?

[Bob_Smith]

You can withdraw funds from your retirement plans without penalty at an early age, but it requires that you take substantially equal periodic payments (SEPP). In other words, set up a regular withdrawal schedule based on rather complex IRS rules. But it is definitely doable. Here's some info:

http://www.retireearlyhomepage.com/wdraw59.html

lwb,

I would not sweat this detail right now. You are only 28 and in the accumulation phase right now. Your mission is to maximize savings and minimize taxes. So I would put everything in a tax deferred account.

Also realize that life will change rather drastically by the time you reach 40. And although 40 may seem like a long way off, no one really retires at 40. -- 50 maybe, but 55 is early and 60 is still early. so don't sweat the small stuff and just continue to park your savings in areas that won't be taxed.

[lwbarry]

Thanks all! Cutthroat, that is great advice not to think too far ahead. Sometimes I get too "stressed out" over trying to figure all this stuff out when you're right, who knows what life will look like in 10 or 20 years, much less next week. I will just keep saving and let the rest take care of itself.

I am currently considering adjusting my IRA money.
I have it split 50/50 between "investment grade" bonds
and an aggressive bond fund. Returns are good, but
an increase in interest rates will drive the values down.
Psychologically, I have trouble dealing with that. I would
like to put 50% into CDs but with rates so low I can't
find anything. Money market might be okay, but that is
only a temp. fix. It's a puzzlement. Hate to move the whole thing (again) but that may be where I end up.

[unclemick]

"Psychologically,I have trouble dealing with that". Me too - having an incurable habit of watching markets since 1965 or 66. My shrink is Benjamin Grhham - I have a dollar bill bookmark on page 108 of the 1972 edition of The Intelligent Investor - Chapter 8 - the investor and market fluctations - its helped me 'do nothing' periodically over the years.

Since I'm a balanced index kind of guy, my advice on bonds is best discounted.

But I will say this - I mentally try to split my ER portfolio(balanced index IRA) and my 'income bucket'. The market value of the income bucket fluctuates(hence the book) - also in a former life I was an engineer so I try to view it as a income machine. It contains stuff like Con. ED., Verizon, Exxon, National Fuel Gas, vg REIT Inex, vg High Yeild Corp, Gabelli conv bond,etc.
I run it as an inflation adjusted income in FIREcalc.

Maybe the bond cats can post some good info. I can relate to the mental - I still watch the markets almost every day.

[unclemick]

Sorry - it's Benjamin Graham

[JWR1945]

unclemick:

Sorry - it's Benjamin Graham

I liked the way that you spelled it the first time. It looked as if you were trying to get a dirty word past the censors.

The more that I think about it, Benjamin Graham's name is a dirty word to a lot of people who want our money.

I thought that it was a great commentary!

Have fun.

John R.