re: Retirement at 55 questions

Just retired at start of 55 myself.

First off, congratulations! It’s incredible. Every aspect of my life has improved since retiring. Hope all the same for you!

Will try not to repeat but here is what I have learned / our approach. Sharing in hopes that it helps your thinking / planning.

First, Rule of 55 will be important. Mentioned above. This is great for your peace of mind to access 401k, whether you choose to or not. As stated, make sure your current 401k allows partial distributions.

We planned for “dynamic” withdrawal rates. For example, go-go yrs when fully active/ambulatory (6-7% withdrawal) 60-75yo, slow-go when we slow down a bit after 75 (4-5% withdrawal) in retirement. First years are 4-4.7% just to be conservative.

We plan to enjoy nest egg with our kids while we are alive and may tap higher withdrawals for extended family vacations, help them with moderate home improvement projects, fund their Roths early in their careers, etc. Blessed that longevity risk is near zero.

To say, your 6% rate is a bit high at start but sounds like your SS and / or pension (cash out or annuity) cushions you well. Make sure you plan for sequence of returns risk, especially your early / 6% years. You may consider bigger cash equivalents (we did this in our tax deferred) or safe fixed income those years to protect yourself.

Will defer to the experts on the MB but I am of opinion that taking pension lump sum makes most sense. Get that on your “balance sheet” and off of your company’s. Removes the annuity survivorship decisions as well. Be careful here. I rolled into existing 401k, not a new IRA. There are watch outs here that impact Roth conversions (I think) if you roll to new IRA.

We no longer have life insurance. Again will defer to MB experts, but with your nest egg, you may not need. We do not.

With large tax deferred mix, you may want to consider RMD reduction strategy. For example, we are going heavy Roth conversions in early retirement years (and will do so until RMD years…reducing conversion per tax table space (ie, less during pension and SS years)). The lifetime of reduced taxes is big! Further, in natural course of life, we do not want to hit our kids with an estate at their highest tax earning years. As well, the widow tax if I go (places wife as single tax filer / higher tax tables). Roth conversions are beautiful for all above.

Cleared tax table right now to enable this (eg, tax exempt muni’s frees up tax tables). Had some large non qualified retirement lump sums that help us do this.

We have mortgage at under 3% rate. We plan for it in our retirement expenses (withdrawal rates). Have associated ETF that could more than pay it off tomorrow, with significant safety margin, but is earning double digits vs the 3% mortgage rate…will never pay it off with such positive spread).

We have company health insurance so not much help on ACA.

Have spent a lot of focus on RMD reduction planning. Reducing lifetime of taxes is our plan, even if costs us more IRMAA. Get to know IRMAA (Medicare costs / income…that starts 2 years before you start Medicare.

Tips:

Control spending is priority always but especially early years.

Know you Monte Carlo / longevity risk on your money.


Allocate your portfolio so that you rest your head on pillow at night. We plan to be conservative early years and to have more equities exposure over time, as early retirement means long timeline, God willing.

I went a bit long. Hope helps!

quote:

---

Have spent a lot of focus on RMD reduction planning. Reducing lifetime of taxes is our plan, even if costs us more IRMAA. Get to know IRMAA (Medicare costs / income…that starts 2 years before you start Medicare.

---

This will be big in whichever decisions I make. Any decision that seems close, or iffy, I will always choose the option that gives the least to the govt, even if it means I have to live slightly more modest than I'd otherwise choose.

I appreciate the time and thought put into your response. Thank you!

Married filing jointly the top of the 12% bracket is $100,800. You don't hit 24% until after $200,000.

For $140,000 you should only have about $20,000 or so in the 22% bracket depending on deductions, the rest will be at 10% and 12%. Your effective Fed tax rate is close to 11.5% on the whole $140K. So that 20% withholding on your 401K results in paying about 85% more taxes than you have to, then waiting patiently for them to refund it to you each year.

You would have more flexibility with the 401K than with the 72t, but your choices are not all or nothing. You can roll over some of it to an IRA to meet some basic income needs through 72t, and leave some of it in 401K for some more flexible spending under Rule of 55. Then alter the withholding on your 72t withdrawals such that 20% withheld on your 401K withdrawals makes the math work out.

Not everyone wants to get down in the weeds on this, but the only person who really has your best interests at heart is you.

LINK

Coincidentally, just watched one of my fav personal finance YouTubers…Erin Talks Money.

Several withdrawal rate points pertinent to your thread you may find interesting.

If you pay off the house and get debt free, day to day living is manageable. Speaking from experience.

What's the note per month? If you pay it off, you have the note amount for living expenses.

quote:

---

In the very first month of retirement, our take home "pay" will be more than it's ever been in my working career

---

This is the big sign! When ours projected to be 15% more than highest earning years, concept of working went on life support, so to speak. Option to spend, not necessarily what will be spent.

Good for you!

quote:

---

What's the note per month? If you pay it off, you have the note amount for living expenses.

---

The mortgage payment is not what matters to me here. It's the interest rate, which is not the lowest, but still fairly low.

I believe I'd prefer having that money invested and working for me, rather than write a check that size just to pay it off.

I'm open to other lines of thought, however.