Trying to figure out when I can tap a retirement account???

[MrBojangles]

I had always thought the only option was at age 59 1/2, unless you were willing to incur a 10% penalty.

But, an I correct, that you can tap a retirement account before 59 1/2 from an employer that you are employed by on 01 January of the year you turn age 55? If so, in that account, I will use that to tide me over when I retire, hopefully at age 57, to being able to tap the much larger account at age 59 1/2.

The problem is, the much larger account is with the TSP and I left the Federal government at age 53. Believe it or not, I found the Federal government to not be a very good employer, pay was poor, subordinates were difficult to supervise, hours were long, poor working conditions, and no WFH. So I left, nearly 25 years in. Living 3 hours away from home another 5 years every week wasn’t realistic and I didn’t anticipate the early retirement option offered by Trump coming.

Thoughts?

And a brief word on how I got here. What you major in in college is incredibly important! You are expected to make lifetime decisions with an 18 year old brain, which, in my case, was immature. I’m amazed many can make the mature decision to study engineering or other sensible fields at that age. All I saw was that, hey, I have a college degree, now major corporation, pat me lots of money and you get 1% per year worked as a retirement and you have to decide when to step of the gravy train, 1% of a lot of money still being a lot of money. I saw myself as incredibly valuable to a company, others didn’t. And so, faced with a degree that was useless and with limited options for graduate school because of it, I have an okay career, but there are easier ways to earn far more, provided you start out the right way in college, or, better yet, the military or trade school. And so, because of this, I’ve saved religiously, although I originally thought it would be the opposite—earn a lot, and do your civic duty and spend a lot—stimulate the economy!

 

[NeilDH]

You are referring to the Rule of 55, where you can tap into the retirement account you have in conjunction with your current employer, as you say, if you leave that job for any reason once you're 55. You ask whether you can tap into that account once you leave the job in the year that you turn 55, even if you're not 55 yet when you leave the job. I guess I assumed you had to be 55 before you left the job, so I'd love to see an answer to that, too — could you tap into that account in the year you turn 55 if you left the job at age 54 and a half, for example.

In any case, there's also 72t, or SEPP — substantially equal periodic payments. This works on any retirement account, or all of them, but there are considerable restrictions: Once you start, which you can do at any age, you can't stop for at least five years and until you're at least 59.5, and the payments have to be equal or you could pay a big penalty. Plus you can't add or subtract to those accounts other than the SEPPs once you start the SEPPs. And calculating those payments is a precise process that's confusing (though surmountable).

Lots of discussion of either of these throughout this site, and of course all over the place online. Rule of 55 is definitely the nicer option of the two if you can do it and it's worth it for you, and there's a lot of caution expressed here about 72t, but still, many have done it or are doing it. (I can't do Rule of 55 and decided against 72t, but I have taxable accounts to draw on until I'm 59.5.)

 

[NgineER]

Neil is correct, those are two options. You could also build a Roth IRA ladder to access your retirement money prior to age 59.5. This requires the money to season for five years before you can withdraw them penalty free. This is the approach k am planning to take when I retire at 55.

 

[Lawrencewendall]

I resigned at 54 in the year I turned 55. Been pulling from my TSP for 6 years now. Pay taxes on the withdrawal but no penalty.

 

[MrBojangles]

On this site, it seems there are many retirees at 55 or younger, which is a great thing. That’s not what I’m seeing in the real world. Folks age 62 or older, fretting about if they can afford to retire. Early on in my Federal career, I saw many folks under the old CSRS system never save much money and miraculously retire at age 55 with not a care in the world. Sad that had to end…

 

[TickTock]

The population here is most definitely not representative of the general population, financial-wise.

FWIW, I retired at 56. I think there's been some polls on retirement ages.

ETA - Found it! What age people on ER actually retired

 

[MrBojangles]

The population here is most definitely not representative of the general population, financial-wise.

FWIW, I retired at 56. I think there's been some polls on retirement ages.

ETA - Found it! https://www.early-retirement.org/threads/what-age-people-on-er-actually-retired.123648/

That link gives me “The URL can’t be shown”.

 

[TheWizard]

Neil is correct, those are two options. You could also build a Roth IRA ladder to access your retirement money prior to age 59.5. This requires the money to season for five years before you can withdraw them penalty free. This is the approach k am planning to take when I retire at 55.

You can withdraw contributions to your Roth IRA at any time, any age, no five year period needed.

But Roth CONVERSIONS are different and doing them prior to 59-1/2 requires you to pay the taxes with other money, converting the entire amount taken from your tIRA...

 

[TickTock]

That link gives me “The URL can’t be shown”.

I had a formatting error. Try it now, and thanks for letting me know.

 

[jazz4cash]

That link gives me “The URL can’t be shown”.

Screenshot

 

[MissMolly]

You are referring to the Rule of 55, where you can tap into the retirement account you have in conjunction with your current employer, as you say, if you leave that job for any reason once you're 55. You ask whether you can tap into that account once you leave the job in the year that you turn 55, even if you're not 55 yet when you leave the job. I guess I assumed you had to be 55 before you left the job, so I'd love to see an answer to that, too — could you tap into that account in the year you turn 55 if you left the job at age 54 and a half, for example.

In any case, there's also 72t, or SEPP — substantially equal periodic payments. This works on any retirement account, or all of them, but there are considerable restrictions: Once you start, which you can do at any age, you can't stop for at least five years and until you're at least 59.5, and the payments have to be equal or you could pay a big penalty. Plus you can't add or subtract to those accounts other than the SEPPs once you start the SEPPs. And calculating those payments is a precise process that's confusing (though surmountable).

Lots of discussion of either of these throughout this site, and of course all over the place online. Rule of 55 is definitely the nicer option of the two if you can do it and it's worth it for you, and there's a lot of caution expressed here about 72t, but still, many have done it or are doing it. (I can't do Rule of 55 and decided against 72t, but I have taxable accounts to draw on until I'm 59.5.)

It is most definitely the year you turn 55. You can retire as early as Jan 1 with a birthday of Dec 31 later that same year. Rule of 55

 

[Out-to-Lunch]

As I understand it, the employer's plan may or may not allow partial Rule of 55 withdrawals. I think all plans are required to allow Rule of 55 distributions, but it may be that they only allow total distributions. A total distribution likely has bad tax consequences. And rolling to an IRA defeats the purpose. So check the details of your employer's plan.

 

[MrBojangles]

View attachment 55517
Screenshot

This seems really hard to believe. I’ve saved diligently, and question if I can leave for good in 2 1/2 years at age 57 and change. Most others I know don’t make saving for retirement a priority and I don’t see how over 85% are able to retire before 60 and nearly half of them before age 55.

 

[MrBojangles]

Now that I think about this more, where’s the lifeline?

Most folks don’t have a pension anymore.

IF someone saved for retirement, there’s usually no strings attached to tapping into that until at least 59 1/2.

Social security isn’t available until age 62. Often, to have a decent 35 years of income, working beyond that is required.

Medicare doesn’t kick in until age 65. Which means, for most, retirement is not viable until one’s 65th Birthday.

And my massive gripe. All of the above safety nets SHOULD be available by age 40, if not earlier, allowing for a retirement that far, far exceeds one’s working years. (Let’s face it, working SUCKS!)

 

[jazz4cash]

This seems really hard to believe. I’ve saved diligently, and question if I can leave for good in 2 1/2 years at age 57 and change. Most others I know don’t make saving for retirement a priority and I don’t see how over 85% are able to retire before 60 and nearly half of them before age 55.

See post #6.

 

[MrBojangles]

See post #6.

I see, I totally missed it! ER means those on this forum, not the overall general population. Now that makes sense.

Most surrounding me live high on the hog and aren’t frugal, but retirement seems like a pipe dream. My FIL will be 72 later this year, is a financial planner, did well for his clients, but never practiced what he preached, for example…

 

[TheWizard]

Now that I think about this more, where’s the lifeline?

Most folks don’t have a pension anymore.

IF someone saved for retirement, there’s usually no strings attached to tapping into that until at least 59 1/2.

Social security isn’t available until age 62. Often, to have a decent 35 years of income, working beyond that is required.

Medicare doesn’t kick in until age 65. Which means, for most, retirement is not viable until one’s 65th Birthday.

And my massive gripe. All of the above safety nets SHOULD be available by age 40, if not earlier, allowing for a retirement that far, far exceeds one’s working years. (Let’s face it, working SUCKS!)

It appears that you are WHINING.
Folks can retire whenever they choose to.
Earlier with less annual income.
Later with more income.
Warren is finally retiring this year; he'll likely be okay money wise...

 

[MrBojangles]

It appears that you are WHINING.
Folks can retire whenever they choose to.
Earlier with less annual income.
Later with more income.
Warren is finally retiring this year; he'll likely be okay money wise...

And so what if I am.

It’s a completely stupid system where you have to work forever for someone else for very little.

I saw many individuals around me who inherited trust funds. My parents told me that wasn’t the real world. I didn’t believe them or didn’t want to. You would think a wealthy nation such as ours could consist of inherited wealth or measures in place to make individuals incredibly wealthy at a very young age.

To say I’m resentful wouldn’t be wrong. But it isn’t their fault, many individuals I saw came from families who made fortunes before any regulation and pre 1913/income tax.

Somehow, I thought I could go to NYC and make a tremendous fortune, due to the vast wealth there and the best I could get was an offer at $12 an hour in 1993.

It didn’t work as planned. I wasted college thinking I’m doing it to become as wealthy as Warren. It’s a lot more than luck or maybe a lot of luck for the lucky few.

 

[pb4uski]

Grow up for chrissakes! And The Wizard is right... you are whining.

You're not working forever. Even if you work from graduating at 22 to SS at 62, that's only 40 years or 43 years until Medicare at 65. So you're only working for about half of your life.

You are right that most folks don't have pensions anymore so you need to save for retirement. It's not a deep dark secret and is extremely well advertised. Didn't you get the memo?

If you want retire before SS is first available at 62 then you need to save to carry you from ER to SS.

If you want to retire before Medicare at 65 then you can buy individual health insuance. If you manage your income you can get premium tax credits to help with the cost.

Working sucks if you let it and with your attitude it isn't surprising. Believe it or not there are many, many here... literally thousands... who actually enjoyed work but retired anyway. They had a can-do attitude and overcame all the obstacles that are paralyzing you,

They saved and retired early and are now enjoying life even more.

 

[MrBojangles]

It’s not the work I do I object to, it’s how it takes away from the time I want for everything else.

Plus it never worked out as planned. I had planned to work for a mega corporation and make so much money the options would be does it make sense to retire really, really young really, really rich or keep working due to the large income and perks. Never even could get that mega corporation job to begin with.

And I’ve seen so many folks who never had to work a day in their life. Some, shamefully, really squandered it.

I think, in the end, my gripe is it should be incredibly easy to do what I intended to do with a college degree, and I couldn’t do it despite being my goal. And I see around me some folks with good college degrees (or at least from good schools) not earning much more than minimal wages.

 

[pb4uski]

I think your expectations were unrealistic to begin with and set you up for disappointment.

 

[5Miler]

There are many of us here who retired early without college degrees, pensions or a large inheritance but still manage to live well.

Amazing really.

 

[Al18]

In my experience, college only gets you a foot in the door. You’ll need to prove you’re a hard worker and a team player, typically starting at small to mid-size companies until you are qualified for better jobs in your 40’s.

Despite all the complaints, it sounds like you were somewhat successful, being able to retire before 62.

 

[MrBojangles]

In my experience, college only gets you a foot in the door. You’ll need to prove you’re a hard worker and a team player, typically starting at small to mid-size companies until you are qualified for better jobs in your 40’s.

Despite all the complaints, it sounds like you were somewhat successful, being able to retire before 62.

Yes, I will be able to retire well before 62, so no complaints with that.

However, a wealthy nation like ours should easily allow for more of the inherited wealth thing, or massive salaries from the start so you don’t have to save, save, save, like I did. All that money saved sits dormant, except for growth. Doesn’t purchase goods and services and stimulate the economy nor does it enable me to lead an exciting lifestyle.

 

[TheWizard]

Yes, I will be able to retire well before 62, so no complaints with that.

However, a wealthy nation like ours should easily allow for more of the inherited wealth thing, or massive salaries from the start so you don’t have to save, save, save, like I did. All that money saved sits dormant, except for growth. Doesn’t purchase goods and services and stimulate the economy nor does it enable me to lead an exciting lifestyle.

I don't think you quite understand economics, supply&demand, and things of that sort...