Author Topic: What types of accounts does post-FIRE income come from before age 60?  (Read 3196 times)

koralcem

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I'm familiar with the 4% rule: save 25 times your desired spending, then you're ready to retire. But if you accumulate that stash following the suggested investment order, you'll end up with the total stash split between retirement accounts and regular, taxable brokerage accounts. There's a penalty for drawing from retirement accounts before age 60 (with some exceptions), and I'm assuming people are hoping to retire before then.

So for the folks who are already FIRE'd: From which accounts do you actually draw your income? I saw this sticky post about dipping into an IRA before 60 without penalty. Is doing that the norm? Because I'd imagine it would be tough to bridge the gap between FIREing and age 60 with just the taxable account alone, no? Or do you somehow do the math such that you draw only on the taxable account before 60, it depletes right around age 60, at which point you tap into the retirement accounts?

JLee

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The Roth conversion ladder (in post 2 of your link) is commonly recommended, with taxable accounts / savings to carry you through the five year interval before the ladder funds are available.

Goldielocks

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Still in my first year.  Honestly,  I built up 3+ years of savings, so I am only using cash accounts for now, and slowly, as I am making $10k per year in income in my side hustle, and DH is still working.  We plan not to touch the big retirement accounts until they are $2million, so quite a while yet.

Linda_Norway

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Disclaimer: I am not living in the US, so I don't have a Roth or IRA.

I expect to sell a part of my privately invested index funds every year to cover the 4%. But in my case, I don't plan to save 25 x my expected expense level, as I expect another pension fund to pay out from the age of 67. Therefore we plan to eat up a part of the stash every year as well, by selling more stock. So that at the age of 67 we are just on the positive side of having savings. However, I hope we can generate some extra income from a future side-gig, so that we can reduce the stash as little as possible.

jim555

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All from after tax accounts.  CDs, interest, dividends, sales of shares.

WannaGoOutside

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Note that I'm retiring at the end of this (!!!) month, so we are early in our RE journey.

We have a bucket approach due to our age and investments.  We have roughly 1/3 of our savings in after tax investments, so that will be bucket 1.  DH is 53, so his 401k/IRA qualified investments are our bucket 2.  And I'm 45, so we have a while before we will dip into my 401k/IRA qualified investments, which are bucket 3.

We will likely start Roth conversions on my qualified investments, but not for early access.  Doing so should make for "smoother sailing" in the old folks years, as all withdrawals will be tax free and not subject to Required Minimum Distributions.
« Last Edit: June 01, 2017, 10:09:10 AM by WannaGoOutside »

ShortInSeattle

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We're using after-tax investment dollars and will begin ROTH conversions this year.

SIS

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We have a combination of strategies we are planning on using:

1) We are planning on doing the Roth conversion ladder, assuming it continues to be viable (i.e. tax laws still allow it). 
2) For immediate use, we will rely on investments in our taxable account. 
3) My wife is planning to continue working part time until the beginning of 2019, which is the year in which she turns 55 -- if she decides to quit entirely at that time, she will be able to withdraw without penalty from her 401k plan (of the employer she retires from).

Thinking longer-term, the Roth conversion ladder will allow us to move money out of 401k (or traditional IRA) accounts at a low tax bracket -- currently anticipating doing all such conversions within the 15% bracket.  This will allow us to lessen RMDs at age 70 1/2.

respond2u

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The Roth conversion ladder didn't make financial sense for me because of the exorbitant reduction in ACA subsidy. Maybe in 202X when the ACA is amended it will make sense again. I guess the people that use it are living off savings anyway and need manufactured income to avoid Medicaid, or have health care already taken care of.

This year, I'm living off savings and an unexpected part-time job (with a friend, it was hardly work, but it was fantastic $$$), and I plan to start my first 72(t)/SEPP this month (out of 3). Along with that, I have about 20% of my budget funded from dividends in a taxable account.

One of my bigger financial regret is that I didn't put more money into my SEP-IRA because I didn't know about the 72(t) program. I could have saved a lot more money on taxes over the years...


Shane

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When we FIRED last year we also sold our primary residence and invested the proceeds in a taxable brokerage account.

The dividends from that account are funding ~1/3 of our FIRE spending. The other two thirds of our RE income comes from selling shares in the taxable account twice a year.

At that withdrawal rate, the money in our taxable account should last, at least, 20 years.

While we are drawing funds in our taxable account down, the investments in our tax deferred retirement accounts will continue growing with dividends reinvesting.

If we end up earning any money during FIRE, we'll likely put 100% of it into our Roth and SEP IRAs and just keep spending down the taxable account. If and when our taxable savings runs out, by then, we'll be old enough to withdraw from our tax deferred accounts.

Ideally, we'll never need to touch the money in our retirement accounts, but it's nice to have them there as a backup in case we need the money.

spartana

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #10 on: June 05, 2017, 01:52:12 AM »
Retired at 42 knowing I'd get a small  government pension once 50 so cash (laddered CDs and bonds) to cover the gap. Also had government 457 plan I could access at any age penalty-free if needed. Although I plan to leave the 457 and IRAs for old age. Also downsized housing so had extra after-tax $$ to invest or use as needed.
« Last Edit: June 05, 2017, 01:56:07 AM by spartana »
Retired at 42 to play!

koralcem

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #11 on: June 08, 2017, 05:55:37 PM »
Thanks everyone. It helps to see hear how different strategies are actually playing out.

WannaGoOutside, congrats on getting to the finish line!

WannaGoOutside

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #12 on: June 09, 2017, 10:55:48 AM »
...

WannaGoOutside, congrats on getting to the finish line!

Thanks!  3 more weeks!!!

Meadow Lark

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #13 on: June 09, 2017, 07:05:33 PM »
DW just retired at 55 so her 403b is now open with no penalty. 

Holyoak

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #14 on: June 15, 2017, 11:48:26 AM »
Pretty much for me, it's dividend income from my taxable accounts, a few stock/fund sales, and too much cash I have had laying around, to buy a home.

Acastus

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #15 on: July 13, 2017, 10:44:31 AM »
I am on the cusp of FIRE in my 50's. My plan is spending taxable accounts plus 401k first (55+ retirement rule). If that does not take met to age 60, I can tap contributions to Roth IRA's, equal to about 10% of 'stache. Health insurance is up in the air. As long as ACA works, I will be doing minimal Roth ladder to keep income below 80k limit. If things change, I may be able to ramp that up. I would like to have money earmarked to pay off my mortgage at about the 5 year mark. The interest is mighty low for now, so I plan to keep it until we relocate & downsize.

This is one of the delays to FIRE for me. My money was not in the optimum account types 1 year ago. Taxable accounts are now at 6 times burn rate, so I am almost there.

zinethstache

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Re: What types of accounts does post-FIRE income come from before age 60?
« Reply #16 on: July 21, 2017, 12:01:23 PM »
1. Rental Income (ongoing indefinitely, covers us for monthly living + some discretionary ->
2. Cash as needed for unexpected expenses or drop in rental income due to rental maintenance/repairs (should last into next year) ->
3. Pension cash out (should last another year+) ->

2019 and beyond
4. Possible Roth conversion begins depending on ACA - Penalty Draw from 401k if necessary or Possible 72t until 59 1/2