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I think you can only use the rule of 55 if you retire when you’re 55, so if you retire earlier, your 401k is locked up until 59 1/2. So it’s kind of late to shift to the brokerage account to cover you until then.
He can always roll it over onto another account structure
You need an advisor.
Grab the 401(k) match. Put future savings into Roth. When/if able, convert 401(k) to Roth via backdoor conversion. Buy a future mutual income annuity to cover expenses. Put savings aside for kids education + kids whole life. Buy plenty of insurance to cover mortgage/debt + 10x income. Understand that 401(k)'s are terrible for inheritance, when the time comes + RMD's.
Plan for Social Security distributions to maximize benefits or surviving spouse. That may mean delaying benefits to age 70.
Good luck! Enjoy your upcoming freedom.
Setting aside that it’s way outside the scope of what the OP asked for advice on, why would someone 8 years from retirement want life insurance at 10x their income?
if your current marginal tax rate is high, no
24% marginal tax rate
Make sure your plan participates in the rule of 55. Not all do unfortunately.
Coach
Look up Roth conversion ladders, that may be the best way for you to retire earlier.
What’s your annual expense at 55?
Sorry you right. Ladder conversions should be an option tho
I’m also 47, have been maxing out 401k for decades and don’t have $2.5M. Does this include spouse accounts? If not, what are you investing in?
No, my wife (who stays home now) never invested. This is all from my savings starting at 16. Vast majority is S&P 500 index fund, some allocated to international growth and emerging market funds, some individual stocks.
Your brokerage is your bridge account from early retirement age to 59.5. So I would do what needs to be done to get your brokerage to that needed number. Regardless though, are you sure you can retire at 55 if your annual expenses are $120k?
Subject Expert
What tax bracket will you be in when you retire? Lower than 24%, right?
So the marginal dollar of extra 401k contribution now can be converted to Roth at a lower rate in just a few years, and then also get decades of tax free growth. The taxable dollar gets taxed at a higher rate then taxed again for decades.
I would do the 401k contribution.
If you want to retire earlier than 55, look at setting up a SEPP plan, doing a Roth conversion ladder, or other options. You probably don't have to pay so much extra tax to get the liquidity you need.
Get the book tax planning to and through early retirement by Cody Garrett and Sean mullaney. It will answer all your questions accurately.
it depends on your income needs, you could maybe go part time early if you had enough in non qualified accounts, but based on your post I am guessing you need 10-15k a month and to achieve that you'd need over a million to be able to live of the dividends from a covered call etf from neos or tappalpha. unless you wife has income as well and won't be retiring and can add you to her health care plan then 500k would probably do.
YES. You are on the right track. You can manage a brokerage account in the same manner as a 401K and get the same returns and manage risk. You can figure out all the tax stuff when it comes. contribute enough to the traditional plan to get the match and then put the rest in a vehicle you can actually use before you turn 59.5.
What about education expenses for your two kids? Anything saved? Or are they on their own?
Contributing to 529s for them, but otherwise planning for them to cover the rest with student loans.
Coach
Roth might be a good option. That way you get the benefit of the growth tax free but can withdraw the base once you need it.
Taxes are always going up, I’d rather get taxed now at a lower rate compared to later
Well, to put it this way: a 401(k) is a relatively stable investment vehicle. However, if your goal is early retirement, you need to maintain a consistent rate of return over the long term—and do so under conditions of very low risk—because you simply cannot afford to let your principal suffer any losses. If early retirement is indeed your objective, I would suggest further diversifying your investment portfolio to better hedge against both risk and inflation.
Well, to put it this way: a 401(k) is a relatively stable investment vehicle. However, if your goal is early retirement, you need to maintain a consistent rate of return over the long term—and do so under conditions of very low risk—because you simply cannot afford to let your principal suffer any losses. If early retirement is indeed your objective, I would suggest further diversifying your investment portfolio to better hedge against both risk and inflation.
I think either Roth conversions or altering your allocations are both reasonable approaches. The latter is more tax efficient, but also more complicated.
I’m sure you’ve already got a plan for this, but it seems like you’re planning a retirement right around the start of college for your kids, so make sure you’re considering how that will impact your cash needs as you implement whichever path you choose.
Impressive progress. If you retired before 55, would your taxable account cover the gap? That might help determine where future savings should go
I did the opposite . I’m 47 with a 28 year old son
I think it really depends on your annual cost of living once you retire.