Preparing For An Early Retirement - Avoiding Early Withdrawal Penalties

What accounts should you utilize if you are going to retire early? What account help you to bridge the gap between your earning years and when you will reach a more traditional retirement age?

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Disclaimer: Please note that this video is made for entertainment purposes only and not to be taken as financial advice. Always make sure to do your own research.

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#bridgeaccounts #earlyretirement #financialindependence

[johnmiech]

Great info Erin. We retired early (56 for myself, and 57 for my wife), but planned for that many years in advance. I'm lucky enough to have 2 small pensions and have medical coverage from my last employer (i.e. paying employee rates which are lower than private plan rates). In addition to everything you outlined, I think tracking ACTUAL expenses for ~5 years before a planned retirement date is crucial. This way, one can really zero in on how much they need to at least keep their current standard of living, and then use that to factor in the bridge account value needed based on age/number of years until they want to tap tax advantage accounts. Of course this year's inflation rates weren't expected, but using conservatives numbers in the calculations helps to lessen the pain.

[keithfrasier]

Nice Job Erin. I used a SEPP which is Substantially Equal Periodic Payments to tap into my traditional IRA at 55 to fund my early retirement. If you are at least 55 you can withdraw an amount based on a formula every month if you do it for at least 5 years without a 10% penalty. You still have t claim it as income and pay normal tax but no penalty even though you're not 59 1/2 The SEPP is a little known tool but I could not have retired 10 years early without it.

[joemiller]

Love the hair! I'm 55 and ready (fingers crossed!) to retire. Certainly the earlier one retires the less money they will achieve in life, no argument there. Obviously the stockpiling of wealth needs to be evaluated against quality of life. I've never heard of an HSA - good info! I will look into that! You hit the nail on the head regarding health care. That is the one cost that feels unsurmountable. I really enjoyed your different retirement options (full retirement, phased, etc) - that helped open my eyes to other options to consider. When do I plan to retire? Funny you should ask - as soon as your video ends I have an appointment with my first retirement planner! Wish me luck!

[FIRE_DrNinjaTurtle]

I have HSA and retired @58.5 I got a late start in the fire movement.

[johnnyboyvan]

Retiring this June. Yeah!! 57 with a DB pension and savings. No funds needed yet.

[hogroamer]

Erin, one of your heros, Dave Ramsey says you can get 12% returns in the market. I think 6 to 8% is more reasonable after considering diversity, money on the sideline etc. So.... I have a big problem with the "4% rule". I know even the creator was saying maybe it should be 5%. I think it's Suzy Orman math. If you are earning 6% and only taking out 4%, your account should be growing. And, at some point, social security will reduce that withdrawal rate.

[miked]

First! I am 48 and looking to retire next month using the 72(t) to avoid penalties! I hope to never touch my balance and live off the dividends.

[CraigandMandy]

I turn 55 in January. So we plan on using the rule of 55 as our way to get us to early retirement. We are planning on one more year before using Geo arbitrage in retirement.

[thegameexplainer]

Nice video. My wife and I are planning to retire in a couple of years; we'll be in our late 50s. A brokerage account will be our bridge money, with some support from my wife's 401k (she'll be age eligible when we retire). We'll also have some HSA funds for our medical costs. Once I hit 59.5 we will start to tap into my 401k. We've also talked about maybe finding some part-time work doing something we enjoy, at least for the first 2-3 years.

[littlejoe]

Great content! It summarizes so much complex content

[abriamblair]

Excellent, informative video and presentation, thank you, Erin, you rock!💯🎯

[TimIsThankful]

Great video! I'm 55 and was hoping to utilize the Rule of 55 for an early retirement. Unfortunately, my employer is not on board with the Rule of 55. I'm now exploring other options such as coasting early retirement. Thanks for your advice and suggestions.

[CaptainPIanet]

An incredibly great account is the 457(b) - once you leave your (likely) government employer, you can access this account at anytime without penalty. 457(b) is like a 401k but with much more flexibility. The only downside is that you likely don't receive an employer match. However, this is usually paired with a pension program. I'll likely use my 457(b) as my bridge until I get no-penalty access to my IRAs and pension.

[BoxOfRain]

I retired at 63, but didn't take Social Security until my FRA at 66. I bridged the gap with my employer's pension (only about $800/month), IRA withdrawals and redeeming EE Savings Bonds that matured after 30 years. At the time I bought them, I saw them as a contributory unemployment plan, but kept them for retirement - they're not taxed until you redeem them and are only taxed by the Feds. And you can redeem them after six months. Unfortunately, the interest rate paid on them dropped to where it no longer makes sense to buy them. We were also helped out by my employer's retiree health plan that we could continue after retirement. You could do something similar with COBRA - but my employer's plan also covered my wife.

[hm]

Wow… Outstanding video that explains the ins and outs of the process. My wife and I are in our mid-50s and are slowly downsizing in terms of working full-time. Thanks to nearly every strategy you outlined we will be able to retire in two years.

[SunAtNight]

I'm looking to retire at 55-57, Erin. Thanks for this very helpful video!

[vulpixelful]

It may be possible to experiment with your withdrawal rate in the early years. Maybe try a lower withdrawal rate to incur less taxes, esp if you have the big purchases taken care of for a while, like a car or roof replacement. I expect to replace my car and to do at least one major home repair at least once after 59.5, so it may be possible to see have a lower withdrawal rate starting out to make up for that

[roderick.t]

I’m 54 with 1.5M. Planning on 65, with an HSA, SS and pension. So far, so good. 🙂 Hoping for a smooth transition. 😬

[tonzbal_]

So glad I found this video, very informative! I have been researching how to pull out funds for early retirement. Don't know if what I read is accurate, but funding a Roth 401K then rolling it over into a Roth IRA (that has been opened for 5 years), you can then withdraw the rolled over amount (which included the contributions and growth from the roth 401K) without taxes and penalty. I wonder if there is any truth to that and if that would be a great strategy since you can contribute higher amounts into a Roth 401K and then pull funds from there (by doing the rollover to roth IRA) for early retirement.

[danielnelson]

I plan on retiring between the age of 57-60. Probably age 58. My wife is retiring at 55. Always enjoy your videos.