Overthinking Funding Early Retirement?

[Free_at_49]

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1) I don't change anything. Let's imagine that I have 700K in taxable accounts and 800K in tax-deferred accounts when I get ready to retire. The 700K in taxable accounts alone can only provide about 28K a year at 4%. For me to be able to get an income of 60K at age 50, it means that I would have to withdraw about 8.6% from my taxable accounts the first year. Eventhough, it would still represent only 4% of my total portfolio, it makes me cringe because I am worried that I could run out of money in my taxable accounts before reaching 59.5 at which time I could start digging in my tax-deferred accounts.
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I have that problem too, it's common for young retirees. 50% of my portfolio is in tax-deferred accounts that I can't use until I'm 59.5. It means I have a big chunk of bonds in taxable to avoid selling stocks while they're down in case of a bear market. 1/2 of my portfolio is unavailable for spending, so I'm letting it grow. I've read about 72t withdrawals but I don't understand it, and I don't like it.

 

[teejayevans]

I have that problem too, it's common for young retirees. 50% of my portfolio is in tax-deferred accounts that I can't use until I'm 59.5. It means I have a big chunk of bonds in taxable to avoid selling stocks while they're down in case of a bear market. 1/2 of my portfolio is unavailable for spending, so I'm letting it grow. I've read about 72t withdrawals but I don't understand it, and I don't like it.

If you only have 50% in tax-deferred, you probably won't be needing to
use 72t Make 72t plan B, plan A is to have enough money
in taxable accounts to get you to 60. Its a relatively simple problem, for
example if you retire at 45, and you need 50K/year, you will need 500,000
earning about 6% to live off of. (I used a annuity calculator to figure that
out, ignoring inflation).
TJ

 

[teejayevans]

Save as much as you can in both buckets, and when the time comes, I suggest using the 72t which will lighten the tax deferred pool while you are paying very little taxes anyway.

If you are just trying to lighten your tax load, I would transfer money
over to Roth instead as you alluded to.
I would only use 72t if you need the money to spend, mainly because
of the restrictions (can't change amount, must take out till 59.5, etc)
TJ