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What is your pre-retirement income strategy?
Old 03-19-2014, 11:40 AM   #1
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What is your pre-retirement income strategy?

What is your pre-retirement income strategy for before age 59.5 when most accounts are going to be accessible penalty free?

We are still 13-15 years away from a proposed retirement age, but H and I could have 10 years in pre-retirement. We are 35 & 37 right now.

The proposed income sources as of today are:

457b accounts that we can access pre-59.5 once we quit our jobs. Subject to income taxes. No early withdrawal penalties.

Roth IRA contributions can be withdrawn penalty free.

HSAs will be used for pre-retirement medical expenses/premiums.

We are toying with the idea of throwing an extra $1000 at our mortgage right now (in addition to the bi-weekly method), which will pay it off in 4.5 years (we'll be ages 41 and 39 then). Our average monthly NOW expenses minus the mortgage lowers the average 25%.

However, the biweekly plan that we're doing now will still have the mortgage paid off by the proposed retirement age (15 years from now).

That's all I've got! Quick calculations show that the 457b will be valued over 1Mil alone in 13 years at 4% apr. 457b only make up 35% of our total savings at the moment.

I played on FireCalc, and it gave me good results, but does it not assume I can access all of my accounts at the retirement age I punch in?

Care to share your pre-retirement age game plan?
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Old 03-19-2014, 12:03 PM   #2
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Taxable brokerage account + sale of home (going homeless). Invest 3 or 4 years living expenses in CD ladder and the rest goes into the stock market.
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Old 03-19-2014, 12:07 PM   #3
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For me it would be:

1) Interests and dividends from taxable accounts and roth IRA
2) rents from investment properties
3) i-bonds - redeemed as needed until tIRA kicks in.
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Old 03-19-2014, 12:17 PM   #4
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Quote:
Originally Posted by ginadog View Post
...Care to share your pre-retirement age game plan?
Taxable mutual fund accounts.

Back ups are Roth contributions, HSA withdrawals for unreimbursed medical expenses and possible even a refinance of our home but since our taxable accounts far exceed our likely expenses from ER to 59.5 these backups won;t come into play.
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Old 03-19-2014, 01:10 PM   #5
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DH didn't leave the megacorp job until he was 55+. We rolled over enough money from other retirement accounts to the megacorp 401K to live on until 59.5, before he left so all that money is available penalty free, though not tax free.

We took our pensions early, lowered our expenses in general with more time for DIY and price shopping, opened an HSA account, reduced our taxes significantly, no longer need to save for retirement, and each work part time at hobby businesses, and now qualify for ACA subsidies and financial aid for college.
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Old 03-19-2014, 03:22 PM   #6
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I'm 39 and hoping to retire in about 10 years. To fund the early retirement from age 50-59.5 I'm counting on my two major sponsors...meet Savings and Investments I don't have pension etc.

I figure I need about 50k per year to live on, so about $500k+inflation+safety-margin = $650ish. The big question mark is the house, it won't be paid off in 20 years let alone 10. I'm putting all my money in Index funds because I don't have the luxury of time to reach my goal so paying down the mortgage faster is not an option. I may sell the house and live in a 4wd camper somewhere or move to a cheaper location, however, I'd prefer to leave the house (or some assets) to my kid when I'm outta here.
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Old 03-19-2014, 04:01 PM   #7
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I was out at 49yo and am using a MM account refilled from Lifestrategy mutual fund and Wellesley. I try and keep 2 years $ in the MM account re filled when thing are "rosey" in the market.
At 59.5 I will start to pull from IRAs and 401Ks with tax implications in mind.
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Old 03-19-2014, 04:12 PM   #8
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Another vote for index funds in taxable accounts. The dividends from these are paid automatically into my savings account, but I also need to make up about half my income from the sale of some funds too. I only have 9 years to go before I can access my IRA's and fully expect the taxable accounts to get me there. I have 26x annual spending in the taxable accounts and would be pretty upset if that didn't last me the next 9 years - it should last for a fair length of time after I turn 59 1/2.

In addition to the IRA's, SS will be the icing on the cake when that finally kicks in.
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Old 03-19-2014, 04:19 PM   #9
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Taxable accounts. Possibly rental income while we travel & rent out our primary residence for a few years.
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Old 03-19-2014, 04:25 PM   #10
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Could someone check my thinking here:

I want to look at just the 457b accounts for pre-retirement purposes and their value in 13 years.

I used this calculator (link) punched in the value of just the 457b right now, tried out 4, 6, 10% APRs, entered my monthly contribution (assuming we will contribute the same amount for 13 years), and got well over $1 Mil even at 4% growth. So that appears to be plenty to live on for 10 years in pre-retirement especially with the mortgage paid off too (guessing ER at 50). Is my logic here correct?

The 457b value only makes up 35% of our total retirement pool as of today.

I also did a calculation for all the remaining non-457b money and its projected value at age 60 (as if the 457b were all used up in 10 years of pre-retirement).

ETA: Oops, I assumed today's contributions levels for my latter calculation and that probably won't be the case after quitting our jobs I'm guessing, although those projected income levels I came up with are very nice (the mortgage will be done too).
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Old 03-19-2014, 04:34 PM   #11
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Early pensions, Return of Roth Contributions, and 72t.
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Old 03-19-2014, 04:42 PM   #12
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We've been using dividends and cap gains from taxable accounts plus cashing in of CDs and IBonds. Only got 6 months to go before reaching 59.5.
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Old 03-19-2014, 05:33 PM   #13
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DH is 62 - so he just started drawing SS.
We have rental income.
We have taxable accounts - but not quite enough to fund till I'm 59.5 - unless we deplete DH's IRAs as well. Our plan is to ROTH convert those.
We also have an inherited IRA - and the small RMDs (getting bigger each year as I get older and the market grows.) I can pull as much as I need from that - but have to pay taxes on it. Can't Roth convert the inherited IRA.
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Old 03-19-2014, 06:15 PM   #14
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Retired 7 years ago at 48 with most of my money in individual stocks in IRAs. Living off 72t distributions since, funded almost entirely by dividends.
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Old 03-19-2014, 06:28 PM   #15
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About half 72t, half taxables, sprinkling of HSA money, enough to cover full silver plan deductibles and co-pays for 5-10 years. Early small pension isn't until 62.
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Old 03-19-2014, 11:19 PM   #16
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When I ERed in late 2008, I cashed out the company stock in my 401k which was worth about $300k. I was able to use NUA (Net Unrealized Appreciation) to lower the federal tax bite to 15% (LTCG) and avoid the 10% penalty for 97% of the stock's value (due to NUA).

I invested that in a taxable bond fund whose monthly dividends are enough to cover my expenses. I already had considerable holdings in other bond funds and some stock funds so all/most of that excess gets reinvested. Even if I have to dip into principal before I turn ~60 in 10 years from now, I will be okay. Starting when I turn ~60 I begin to have access to the first of my "reinforcements" which include (1) unfettered access to my IRA, (2) my frozen company pension, and (3) Social Security.
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Old 03-20-2014, 03:09 AM   #17
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Max out IRA's.
Invest all bonuses.
Let stock options appreciate for CG's
Spend way less than income.
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Old 03-20-2014, 04:24 PM   #18
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Taxable accounts and my pension.
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