What is early retirement for you?

[emi guy]

I've been reading here for several months now, trying to figure out the interesting (and enviable) situations that members have for themselves. My question is a basic one, having to do with the mechanics of retiring early. For those of you WITHOUT a pension to tap - Are you retired early and living on non-tax advantaged savings or have you somehow gained access to your IRA/401K before the normal 59 1/2 age requirement (before penalty).
Sorry to ask what appears to be such a novice question but as they told me in grammer school "ask the question, if you have it some else likely does too".
thanks! cataman

[runchman]

I'm not retired, but I know there is an IRS rule 72(t) that allows withdrawal of money from an ira/401k before 59 1/2. There are specific rules on how you calculate how much you take out each year. Do a search on '72t' and you should be able to find the specifics.

- John

[yakers]

Like runchman said, there is the 72t system. And for a number of folks you can draw off a 401k account after 55 (& before 59.5) without penalty if you have retired.

[kat]

Quote:

Originally Posted by CATAMAN ..... For those of you WITHOUT a pension to tap - Are you retired early and living on non-tax advantaged savings or.....

Yes. I'm using the divs/int in my taxable account for basic expenses, and cap gains for extras.

[Life_is_Good]

I'm using taxable accounts now.... and holding tax advantaged accounts (401K/Roth) until proper age so as not to incur IRS penalties.

[crazy connie]

Retired from mega corp 10/01/05 and did defined benefit plan rollover to IRA. Worked for about 12 months for some acquaintences in a start-up. The rest of the time I have been living off of after tax savings and am now liquidating some stocks. Current plan is to pay off home late this year or after the first of next year. Hope to roll out 401K with substantial after tax (25%) contributions in Jan of 08 into a ROTH. Plan to recharactirize most of the non after tax contributions to the Taxable IRA. Then with a healthy Roth and IRA I plan to start a 72T dist plan on only the Taxable IRA which will cover the 6 & 1/2 years till I am 59 & 1/2. To have what I consider enough to live on I will most likely draw 5% on the IRA. The ROTH will be an emergency safety net. Hopefully I will be able to continue to save out of the distributions. Once I sell the McMansion in 2 or 3 years I will invest about 2 to 3 hundred thousand. Once I have the housing settled, then I may do the one time change under 72T rules to the minimum dist method. Or, I may just be doing Roth conversion of the distribution monies.

My goals are to remain fluid enough during the 72T time to handle opportunities in investments, housing and lifes obstacles and possible jump starting of my 2 young adult children to get established in life while having I enjoy decent but modest lifestyle. My current projection while on 72T dist is to have $1500 for monthly living above the essentials. Out of this I plan to put $500 into the Credit Union & short term CD's for car replacement in a few years. I bought a new vehicle in Q4 of 06 and it may well be in great shape for quite a few more years.

I have a partially paid health plan from Mega-Corp. My trust in them has been destroyed and that was the primary driver behind taking a Lump Sum when I left. With a large ROTH on the back burner, I can cover the Health Care premium if they go tits up. My need for flexiblity and security increases as I age and I will become more conservative over time. Should my portfolio get stressed by the economy, I can live with 25% less than current assets in the IRA. Should we get more than a 10% correction or more than 12 months of a down market, I will see that in the balances. I would consider getting part time employment only then. While I am on the 72T, my goal is to have sufficient returns that the principal grows enough to offset the distributions and grow the balance by the rate of inflation.

We all have unique needs and goals. Some have more than others. The goal is to have enough to be happy and escaped from the rat race. For me enough is enough!

[Finance Dave]

Not retired, but I agree with others to look at 72t. It says the amount you can take each year is defined by one of three complex calculations that are essentially annuties over your life expectancy...so don't think you can just go in and take any amount you want.

Good luck!

Dave

[farmerEd]

Living on my after-tax savings here too...won't tap my retirement money for another 25 years or so..

[CyclingInvestor]

I am 48, retired last year with no pension / health benefits, divorced.

Since 89% of my savings are in my 2 regular IRAs (mostly rolled over
401ks), I am taking 72t distributions (using the "easy" formula, based
strictly on age) from my larger IRA. This means I get 1/35.1 of it
distributed this year. This plus dividends from my regular stocks
provide me with plenty to live on.

[bbbamI]

I er'd at 41 (8 years ago). Hubby still works, so that's how we pay the bills.

Since I saved most of my earnings, we are debt free and looking forward to hubby's retirement in 2 years at age 55. Cash saved in cds will make up the majority of money needed until he's 59 1/2.

[clifp]

Retired 8 years ago at 39... I am using dividends and interest from my taxable savings to live and saving my IRAs for a raining day.
Having recently split up with my girlfriend and purchased her 1/2 of the house, I considered setting up a 72(t) plan to pay the mortgage, but I haven't done so yet.

[Martha]

My spouse and I are both retired, I was the last to retire at age 51. We live off of post tax accounts. I have a 401k but it is only about 20% of our assets so it likely won't be touched until I am 59.5.

[Meadbh]

Currently working. Won't have a pension (fund is defined contribution and included in pretax NW). My retirement strategy is to withdraw in as tax efficient a manner as possible. I will begin using (in the following order) dividends from posttax accounts, rental income, and income from posttax accounts. If necessary I will supplement with capital gains. From age 71 I will be obliged to begin withdrawing from pretax accounts (which are skewed towards growth investments because of the longer time horizon).

[carlg1977]

Very interesting post.

What are some other options for tax-deferred savings other than 401K and HSA for those employed individuals whose income is too high for IRA??

[jdw_fire]

Quote:

Originally Posted by carlg1977 Very interesting post. What are some other options for tax-deferred savings other than 401K and HSA for those employed individuals whose income is too high for IRA??

If I remember correctly there is no income limit preventing contributions to TIRAs. The income limit is on whether the contribution is tax deductable, but the TIRA still allows tax deferred growth.

[SherylSwan]

I am almost 51 and have a pension plan based on 17 years of service. If I was to draw on it now, I wouldn't have nearly enough to cover expenses. In another 5 years, I will be debt free and the kids will be finished with university. I would be in a very good position to retire and so will my husband. The catch is that I don't think I want to wait that long!

[Rich_by_the_Bay]

Quote:

Originally Posted by SherylSwan I am almost 51 and have a pension plan based on 17 years of service. If I was to draw on it now, I wouldn't have nearly enough to cover expenses. In another 5 years, I will be debt free and the kids will be finished with university. I would be in a very good position to retire and so will my husband. The catch is that I don't think I want to wait that long!

Welcome to the board, Sheryl. You are in good company here. The best solution I've heard for people like you is to consider part-time work after early semi-retirement. ESRBob's book is the best and most thoughtful discussion of that option that I've seen (there is a link at the bottom of the page).

You have one tremendous advantage in not having to worry about health insurance after retirement as a Canadian citizen. That piece right there would cost upwards of $10-12,000 per year after taxes for those south of the border.

Have you tried modeling your situation in FIRECalc?

[kcowan]

Quote:

Originally Posted by Sheryl's Blog Let's assume that the retirement savings plan grows by 10% per year, tax sheltered, thanks to some quality investing. In 5 years it will be worth around $150,000. If I can get an income of 5% per year, that would come to $7,500 a year. Add that to the $35,200 from the pension and my total income would be around $42,700 a year. The income/expenses gap has been reduced to $17,300. This would be easy enough to earn.

I think a growth of 10% a year in retirement savings is optimistic. OTOH, making $20k part-time might be fine if you can find such work in your current specialty.

[chinaco]

We will retire @ 55. 1/3 of our portfolio is in an after-tax account and the tax basis of that account is about 50% of the value.

We have 2/3 of the portfolio in tax deferred accounts. About 1/3 of that is DW Profit Sharing Trust.

Since we will both retire @ 55 we should be able to tap into our 401ks without penalty.

I have a small pension that I can begin drawing at 55. It will cover about 10% of our income needs. We will begin drawing DW SS @ 62. We are considering waiting on my SS till full retirement 66.x years (to maximize the COLA adjusted annuity for the surviving spouse). We may purchase a fixed annuity with a portion of our money (small fraction). We will watch interest rates after we retire, if they look attractive... we will consider purchasing one for about 25k/year in today's $. It might not make sense to purchase the annuity until we are about 65. The annuity is a wait an see option. These income streams will form a base income for mid to later stages of retirement.

We will try to manage our withdrawals to minimize taxes.

We intend to spend a larger % of our assets earlier in retirement.