59 1/2 is much more important than turning 60

[Gumby]

Silly question here... why do so many people not have enough taxable money when they retire? I have always had at least 4 times the amount saved in taxable compared to tax deferred.

While we were working, our marginal tax rates were so high that we crammed every bit of money we could into tax deferred vehicles (401k, 457, 403b, tIRA). The young wife had both a 457 and a 403b at the same time, so we got 5 tax deferred accounts for 2 people. Due to our incomes, we were not eligible for Roth IRAs. So we hit retirement with very high tax deferred balances, and even after 6 years of Roth conversions, our tax deferred assets are still 70% of the total.

One good thing is the fact that, even when we have to take RMDs, we will never pay marginal tax rates as high as the ones we avoided by putting the money in there initially

 

[NeilDH]

I'm 55, so the past tense doesn't apply to me, but yes, 59.5 is when I can start pulling from my IRA(s) and my Roth is unencumbered. Will be nice to have more options than my taxable to live off of.

Definitely feel like I'm in the "bridge" years right now.

This is me, too. Though over the next four years I'll also use ROTH contributions, but right, I'll feel like 59.5 is the first big checkpoint in the long FIRE bike ride (after, of course, achieving FIRE in the first place).

 

[googily]

I was one of those who had the vast majority of my holdings in my 401k. When DH died (I was 50), I was able to access his former 401k/now IRA without penalty, and that did help me a fair amount. I also stopped contributing to my 401k beyond the match level, and started doing a healthy number of Roth conversions. And when I sold my house in 2024, all of that profit went into my taxable account, so I'm expecting to mostly draw on that and on my Roth until 65, since I'll be on the ACA until then.

I hit 59.5 next month, and so for me it's about having full access to my Roth and also being able to re-title DH's IRA as my own, though I don't really need to do that until he would have hit RMD age. But it'll just be easier to not have to remember when that would be!

Also, turning 60 is a milestone for me because I'll be able to start taking DH's SS survivor benefit, though I'm going to wait until early 2027 to enjoy one year of serious ACA savings (and 0% LTCG tax) thanks to having a very low income.

 

[surprising]

59.5 or 60 does not matter for most since only a small % retire prior to 59.5.

This site is called early-retirement.org after all, so presumably there is a fair amount of users retiring before 59.5 here. I retired at 51 a year ago. 59.5 is pretty important to me because majority of my savings is in pre-tax and no-tax, which I do not want to touch until 59.5. I know I *can* draw from them with penalties or 72t but in my mind they are off limits except in absolute emergencies. This makes planning interesting, and I'm surprised it's not discussed more here. firecalc is great, but it doesn't know age and that I can't touch 401k without penalty for the next few years, so I don't fully trust the results. I can do a shortened firecalc run up to 59.5 but in isolation it might not be too useful. I could model post 59.5 as a lump sum addition but there's no way to break down two distinct sources of funds for tax purposes.

i-orp was a great planner that understood importance of 59.5, but sadly the site has been shut down. I've been playing around with LP solvers to try to mimic i-orp capabilities but also add in more details that are important for us uber-early retirees like maximizing 0% LTCG, minimizing MAGI for ACA subsidies, etc.

 

[surprising]

This site is called early-retirement.org after all, so presumably there is a fair amount of users retiring before 59.5 here. I retired at 51 a year ago. 59.5 is pretty important to me because majority of my savings is in pre-tax and no-tax, which I do not want to touch until 59.5. I know I *can* draw from them with penalties or 72t but in my mind they are off limits except in absolute emergencies. This makes planning interesting, and I'm surprised it's not discussed more here. firecalc is great, but it doesn't know age and that I can't touch 401k without penalty for the next few years, so I don't fully trust the results. I can do a shortened firecalc run up to 59.5 but in isolation it might not be too useful. I could model post 59.5 as a lump sum addition but there's no way to break down two distinct sources of funds for tax purposes.

i-orp was a great planner that understood importance of 59.5, but sadly the site has been shut down. I've been playing around with LP solvers to try to mimic i-orp capabilities but also add in more details that are important for us uber-early retirees like maximizing 0% LTCG, minimizing MAGI for ACA subsidies, etc.

I've been working on an LP solver similar to i-orp and it's giving me interesting results. It is pretty simple right now, but it understands LTCG tax brackets for taxable brokerage accounts (including 0% bracket) and also understands fed tax brackets for pre-tax IRA accounts. The solver maximizes yearly spending (withdrawals minus taxes). For my specific situation with a 40 year time period, it prefers to drain pre-tax IRA for the first 20 years before mixing in after-tax brokerage withdrawals, even though there is a 10% tax penalty for the first 8 years before I turn 59.5. Pretty sure there are bugs, as I would think draining taxable brokerage first at 0% LTCG as long as possible would be desirable.

 

[Jimq]

I retired at 59, I am looking forward to 65 so I can be on Medicare. I have private health insurance and it is killing me but I bought my freedom from rat race. Looking at statistics I should be in top 5 % US population ,hoping to live and enjoy my retirement.

 

[Koolau]

I retired at 59, I am looking forward to 65 so I can be on Medicare. I have private health insurance and it is killing me but I bought my freedom from rat race. Looking at statistics I should be in top 5 % US population ,hoping to live and enjoy my retirement.

Excellent attitude. MC is great. It's not free, but way cheaper than open-market HE.

Keep us posted on hour Early Retirement journey.

 

[pjigar]

My biggest milestone would be 65 (Medicare). We have arranged our financial affairs (brokerage, rental cashflow and differed comp) to not have a need to tap in to the retirement accounts until 65. So 59.5 is not a big milestone for us. But to be fair, it would help if our planning falls short.

 

[G POP]

For me as an early retiree when I had turned 50, the 59 1/2 milestone has been my biggest target milestone. Turning 60 this year seems like a non-event compared to hitting the 59 1/2 milestone next month. I feel like this is when all of my retirement planning really kicks in. I had mentioned the 59 1/2 milestone to my high school friends when we all turned 59, but didn't get any responses back. I guess since all of them are still working, it doesn't matter to them.

Was this a major milestone for you?

2010. That's the year I hit 20 in the USMC and rated my pension. 1 Jan in the year I turned 55 for IRS 55 rule-able to grab my 401K with not penalty. 30 because my oldest sister died at 29. 60 because my other sister died at 59.

18, 19 and 21. ?? Able to drink in WI at 18. Moved to MN for college. Had to wait a month until 19 to drink there. When I was 20, they changed the drinking age to 21 but grandfathered us in. Basically, celebrated first drink in a bar at 18, 19 AND 21.

Oh! I forgot. 35 when I was eligible to run for president.

 

[OddGuy]

Later this year, I turn 59.5. Looking forward to shutting down my 72t a few days later (giving several days of buffer, just to be safe.)

 

[jazz4cash]

But the only advantage the rule of 55 gives is that it allows you flexibility to start and stop withdrawals anytime. A 72t gets you access to the same level of money (and if you start it at age <55 you can stop it at age 60. I think also using the rule of 55 only allows you access to the most recent 401K, so you would not be able to tap former 401K using that method?

When I did a deep dive on 72t you were limited by interest rates using one of two amortization formulas. When rates dropped to zero 72t payouts were affected. I think they did relax some rules and rates are better but I still don’t think it gives access to the same level of money as the age 55 exception.

 

[jazz4cash]

I did a if planning around 59.5 as well as 72t and age 55 rules. Each has nuance. In the end 59.5 rule is what I used and enabled me to delay SS. Still curious why 59.5 and 70.5 (for RMDs) were chosen. I even found a 59.5 calculator.

 

[jim584672]

59.5 is a big deal. But how do you put 59.5 candles on a cake?

What a relief to know a large chunk of funds gets freed up. Also in my state you can do a $20K Roth conversion post 59.5+ and pay no state taxes.

 

[Koolau]

The trick for the 59 1/2 "barrier" is to have some cash set aside so that you can retire before that particular age if your money is in tIRAs or Roths. There's also the retire at 55 rule. You can then access 401(k) without penalty - though not tIRA's/Roths (earnings) IIRC.

 

[googily]

Happy 59th and 1/2 birthday to me!

 

[ArmchairMillionaire]

Happy special occasion!