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That's it. Two more months!
Old 10-03-2007, 03:48 PM   #1
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Join Date: May 2007
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That's it. Two more months!

Lucky for me, the early retirement offer just came at the right time. Since I have planed to retire when I reach 55 in October this year, I jumped right in to accept the offer. In two months, I will be done. The buyout did add a little extra ca$h to my monthly pension. I also will have the option to get the lump sum from my 401K (about 100K with 20% tax withheld) or roll over to other IRA. Since I am 55 and retired from work, I will not pay 10% penalty for the early withdraw.

I am thinking that I can take the lump sum and laddering in a few CDs to provide me some fixed income to supplement my pension. With 5% interest from CDs for 100K, I can safely earn $400/month without touching my principal.

Are there any better options to work with that 401K money which can provide me a nice and extra safe monthly income

Appreciate your help!!!

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Old 10-03-2007, 07:02 PM   #2
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Join Date: May 2007
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I would think you are probably better off leaving your 401K as a tax advantaged account. Leave it where it is, and you can take out the cash as you need it. If you roll it into an IRA, you might not be allowed to get to it so easy until you are 59.5.

If you take out the lump sum, they will withhold the 20%, but you would still owe your normal tax rate on that big income when you file. As a result, you would be getting 5%-ish interest on $70-75K instead of continuing to get market returns on the full $100K.

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Old 10-03-2007, 07:32 PM   #3
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It sounds like your employer won't let you take periodic withdrawals? If that is the case, I would consider rolling it over into an IRA so you don't have to pay income taxes on the whole amount all at once. If you want to take money out of the IRA before age 59 and a half, use the rules of 72t/substantially equal periodic payments. These rules are described here: Retire Early: Can I withdraw money from my IRA before age 59 ?

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