Can I retire at 55

[murphearlyretirement]

Hello, looking for advice. I am about to turn 55 and am thinking about retiring. My financial adviser thinks I can but I would like other opinions. Here is my situation:
My investment portfolio is $928,000, (IRA, 401k, Mutual funds)
Savings is $40,000
Upon retirement I will receive $40,000 severance
My house and cars are paid for, I have no debt
Social Security at 62 would be $1,825 a month
My yearly expenses is $30,000
Is retirement at 55 a reality for me?, I realize I will have to buy healthcare.

Tim

 

[travelover]

How much of that $30,000 yearly expense is health care insurance? How much of your stash is after tax savings?

 

[capjak]

I put your investment amount into Firecalc along with SS at 62, 60% equity portfolio. I ignored the 80,000.
I used 40 year retirement and the Firecalc gave a 95.4% success rate at an annual expense of $50,000.

 

[capjak]

I put your investment amount into Firecalc along with SS at 62, 60% equity portfolio. I ignored the 80,000.
I used 40 year retirement and the Firecalc gave a 95.4% success rate at an annual expense of $50,000.

 

[street]

I say you can with no problem. With taking SS at 62 takes a lot of pressure off of your investments. There will be good and bad times in the markets but I by the looks of it you can live within your means of income. You also can get a sideline PT for the next few years to help pad your income.

 

[pb4uski]

Hello, looking for advice. I am about to turn 55 and am thinking about retiring. My financial adviser thinks I can but I would like other opinions. Here is my situation:
My investment portfolio is $928,000, (IRA, 401k, Mutual funds)
Savings is $40,000
Upon retirement I will receive $40,000 severance
My house and cars are paid for, I have no debt
Social Security at 62 would be $1,825 a month
My yearly expenses is $30,000
Is retirement at 55 a reality for me?, I realize I will have to buy healthcare.

Tim

Yes Tim, I think you can... but only if you are sure $30k of spending is right. Health insurance and health care? Periodic car replacements? Periodic major home replacements like HVAC, roof, carpeting, etc.

Assuming that 25% of your $40k of severance goes to taxes, etc... you would have about $1m. Your SS is $22k a year but your are 7 years away from being able to collect it... so let's carve out $150k from the $1m to fund an SS substitute of $22k a year from 55 to 62, leaving $850k.

A SWR of 4% on that $850k would be $34k a year, plus $22k of "SS" (initally from the $150k side fund and later from the SSA) for a total of $56k.

YMMV, but I think you are good to go.

You can get a sense of your health insurance costs from healthsherpa.com

You can also play SS by ear. If your investments do well and you don't need to start SS then delay and let your benefit grow.. it is good longevity insurance.

 

[Sunset]

OP - Part of the trick is being able to spend money without getting hit with early penalties for withdrawal from IRA prior to 59.5.

How much savings is in regular accounts (not IRA/401K) ?

Can you withdraw from 401K without penalty early ?

 

[pb4uski]

^^^ Good points that I meant to mention and forgot to. But he says that he has some mutual funds so those would be fair game.... how much there and how long it would last is the question.

 

[ut2sua]

OP, at 55, you can get $ from your 401K without early withdrawal penalty (but make sure that $ comes from the current employer's 401K - only withdraw from that 401K account ). If you don't have enough $ in that 401k account, I believe you can roll over some IRA $ into that (check with your 401k plan first; my own 401k plan allows "rollover" IRA $ to get roll in). Doing this will help with your cash flow before SS $ comes in. Good luck

 

[travelover]

OP, at 55, you can get $ from your 401K without early withdrawal penalty .......

Not always true - depends on employer's plan rules.

 

[murphearlyretirement]

NOT including my savings and severance I have $100,000 in mutual funds in an individual account at Fidelity which I believe is mutual funds.

TIM

 

[murphearlyretirement]

If my status is RETIRED I can withdraw money from my 401k without penalty by filing a tax exemption code when I do my taxes.

 

[murphearlyretirement]

Thanks for the Insurance tip.

 

[travelover]

NOT including my savings and severance I have $100,000 in mutual funds in an individual account at Fidelity which I believe is mutual funds.

TIM

If you can live primarily off this, you will be in a very low tax bracket and can get a health care subsidy. Additionally, you can do Roth conversions now to minimize taxes later when you have to do minimum required distributions from your IRA and 401(k).

 

[murphearlyretirement]

I would have to add about ten grand for health insurance so my expenses would probably be around $40,000.

 

[pb4uski]

OP, at 55, you can get $ from your 401K without early withdrawal penalty (but make sure that $ comes from the current employer's 401K - only withdraw from that 401K account ). If you don't have enough $ in that 401k account, I believe you can roll over some IRA $ into that (check with your 401k plan first; my own 401k plan allows "rollover" IRA $ to get roll in). Doing this will help with your cash flow before SS $ comes in. Good luck

Not true... it could be a 401k from a former employer... the rule of 55 only applies to the 401k for employees who leave service in the year that they turn 55.

 

[pb4uski]

If my status is RETIRED I can withdraw money from my 401k without penalty by filing a tax exemption code when I do my taxes.

Incorrect.

Retired or not has nothing to do with it. Technically, you could change jobs at 55 and still be eligible to withdraw penalty free from the former employer 401k even though you are still working.

And you have to have left service in the year that you turn 55... so it would not apply to 401ks from previous employers that you left before the year that you turned 55.

 

[pb4uski]

NOT including my savings and severance I have $100,000 in mutual funds in an individual account at Fidelity which I believe is mutual funds.

TIM

So with savings and severance you'll have about $170k in funds that you can access penalty-free... or over 5 years of withdrawals/spending... so you should be in good shape if $30k is the right.

 

[ut2sua]

And you have to have left service in the year that you turn 55... so it would not apply to 401ks from previous employers that you left before the year that you turned 55.

I am confuse(?). So can I take previous 401K $ (Let say current job where I am at when I am 55 is called "current 401K") penalty free when I am 55 with my current job or not?

 

[Mountain skier]

Your HC should be cheaper than 10k/yr on ACA. If not, retiring now gets a bit more risky

 

[MRG]

Not true... it could be a 401k from a former employer... the rule of 55 only applies to the 401k for employees who leave service in the year that they turn 55.

?

When did that change? I left service the year I turned 56 and used the rule of 55 to allow penalty free withdrawals. Below is my understanding.

https://www.thebalance.com/what-is-the-rule-of-55-2894280

The IRS Rule of 55 allows an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 1/2 to pull money out of their 401(k) or*403(b) plan*without penalty.1*This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.

Of course, there is a slight catch you need to be aware of. The Rule of 55 only applies to assets in your*current*401(k) or 403(b)—the one you invested in while you were at the job you leave at age 55 or older.2 If you have money in a former 401(k) or 403(b), it's*not eligible for the early withdrawal penalty exemption. You would have to wait until age 59 1/2 to begin withdrawing funds from those accounts if you wanted to do so without paying the 10% penalty.*

 

[street]

MRG >> My understanding on the rules is what you described, also.

 

[pb4uski]

I am confuse(?). So can I take previous 401K $ (Let say current job where I am at when I am 55 is called "current 401K") penalty free when I am 55 with my current job or not?

No. But if you were 55 and had a job wih a 401k and resigned and got another job, you could still withdraw from the 401k of the job that you resigned from penalty-free.

IOW, the criteria is that you termnated service in the year that you turned 55... or later.

 

[pb4uski]

....My investment portfolio is $928,000, (IRA, 401k, Mutual funds) ....

OP, at 55, you can get $ from your 401K without early withdrawal penalty (but make sure that $ comes from the current employer's 401K - only withdraw from that 401K account ). If you don't have enough $ in that 401k account, I believe you can roll over some IRA $ into that (check with your 401k plan first; my own 401k plan allows "rollover" IRA $ to get roll in). Doing this will help with your cash flow before SS $ comes in. Good luck

Not true... it could be a 401k from a former employer... the rule of 55 only applies to the 401k for employees who leave service in the year that they turn 55.

?

When did that change? I left service the year I turned 56 and used the rule of 55 to allow penalty free withdrawals. Below is my understanding.

https://www.thebalance.com/what-is-the-rule-of-55-2894280

The IRS Rule of 55 allows an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 1/2 to pull money out of their 401(k) or*403(b) plan*without penalty.1*This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.

Of course, there is a slight catch you need to be aware of. The Rule of 55 only applies to assets in your*current*401(k) or 403(b)—the one you invested in while you were at the job you leave at age 55 or older.2 If you have money in a former 401(k) or 403(b), it's*not eligible for the early withdrawal penalty exemption. You would have to wait until age 59 1/2 to begin withdrawing funds from those accounts if you wanted to do so without paying the 10% penalty.*

I think that you misunderstood what I wrote or that I wasn't clear. I agree with your post... that is the same as my understanding. My point was that where the OP referred to 401k money that it could have been money in 401ks from previous employers and that money would not qualify for penalty-free distributions.

 

[Ready]

Everyone has a different comfort level on how much they need before they pull the plug on work. If you are confident that you can keep your annual expenses to $30K it sounds like your numbers could work. Without knowing anything about your lifestyle it's hard to know whether that is realistic. It's certainly on the low side of what people think they will need to cover their annual expenses after retirement.

Things happen. Cars break down, houses need major repairs, medical expenses not covered by insurance catch us by surprise. I would want to have a lot of padding on top of my projected annual spend to cover these surprises.