Part One of Four: YOU CAN, BUT DON’T DO IT!
A couple of months ago, I retired as a financial advisor after 24 years of advising clients on how to prepare for retirement.
Perhaps once a year, I would get someone who would say that they would like to retire at age 54 or 55 but would follow it up with “But I can’t because most of my money is tied up in my retirement accounts, which I can’t get to until I’m 59 ½ without a penalty.”
That is the assumption of most people but that is incorrect.
Over the next several blogs, I’m going to show you how you can access your money from your traditional IRA’s, Roth IRA’s and your 401k prior to 59 ½ and avoid the 10% early withdrawal penalty. However, this first blog I’m going to discuss with you why you shouldn’t do it.
Over my career, I’ve met with over 8000 couples and helped guide many of them to and through retirement. As a Chartered Retirement Planning Counselor (CRPC) through the College of Financial Planning, the main focus of my firm was retirement planning.
The vast majority of the time when an individual or a couple came in to my office to discuss their retirement, they often mentioned how they would like to retire at age 65. Occasionally, I would get age 63 or 67 as their target age but most often it was age 65.
Remember the toffee like candy of our youth called Now and Laters? I do because these candies were responsible for me losing a few baby teeth when I was kid. (On a side note, my first dentist name was Dr. Love up until I was six years old. When I was six, we moved and my second dentist name was Dr. Slaughter. I kid you not, I had Dr. Love and Dr. Slaughter.) Anyway, when you retire early think of your money like Now and Laters. You have your now money and you have your later money.
If you retire at age 50, it’s very realistic that you’ll live into your 80’s and beyond. For your now money, it’s best if you can use the money in your checking, savings, money market and regular brokerage accounts to get you to age 59 ½. Depending on your early retirement lifestyle, it might be feasible to get a part-time job to help get you to 59 ½. For example, if you plan on full-time RVing, there are lots of seasonal workamping jobs that you can pick up while you are on the road. (We’ll discuss some of these in a future blog.)
Your later money incorporates your retirement savings. It’s better to hold off on accessing your retirement after 59 ½ if at all possible. The number one reason is because you’ll need this money later to help get you into your 80’s. You want to plan like you’ll live to age 100. Whether you retire at 50 or at 65, the number one fear going into retirement is the fear of running out of money.
The second reason to hold off taking your retirement money out prior to 59 ½ , is to allow it to grow for more years, thus hopefully giving you more money to access when you need it in the future. Let’s say you retire at age 50 and are able to leave your retirement accounts alone. Let’s say you have your retirement accounts invested in the stock market and over the next ten years, your accounts average 7.2%. You would double your money in that ten year span. Not bad at all.
So whenever possible, try leaving your retirement accounts alone until you’re 59 ½ or older.
Now with that said, the next three blogs will be how to access your retirement accounts, prior to 59 ½ and avoid the 10% penalty.