Author Topic: Semi Retire on Non 401(k) until 401(k) is available?  (Read 3788 times)

semiretired31

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Semi Retire on Non 401(k) until 401(k) is available?
« on: February 19, 2017, 07:11:42 AM »
I'm fairly new to the MMM community, but have been drinking it in pretty fully for the last couple months.  I've been trying to put my own plan together and am surprised to not see anyone thinking along the same lines I am (or perhaps I am just missing it).  Does my plan make sense?  Feel free to poke holes.

Current Vitals:
37 years old
401(k) at $220k, contributing $15k per year currently
Rainy day savings of $25k
Investments at $26k, minimum plan of contributing $18k per year with real goal of $30k per year
Home valued at $230k, just under 15 yrs left on mortgage $178k left

Goals:
Approximate monthly expenses semi retirement (not hard expenses, but allows me to live comfortably) - $4000/month
Semi retire when mortgage goes to zero - 15 years or 52 years old
Get non 401k investments to $600k by semi retirement - 15 years or 52 years old
Withdraw 5% per year, or $2500 a month from non 401k investments
Wife and I get part time jobs/other income to support $1500/month gap between withdraw and monthly expenses
Let 401k grow as long as possible, first opportunity to withdraw at around 60, delay if possible

Maybe I've missed it... but, here's the part that I haven't seen anybody talk about.  My plan is to retire on my 401k and let it grow as long as possible while drawing down my non 401k investments at 5%, ok with that money running out at or after 60.  That would leave me with a minimum of 8 years (52-60) to draw down that $600k.  If it lasts longer, great.  That will give my 401(k) longer to grow. 

Does this plan make sense?  What else should I be thinking about?  Thanks everyone.







Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3700
  • Age: 45
  • Location: USA
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #1 on: February 19, 2017, 07:40:34 AM »
I plan to do that for 4-5 years while doing the T.IRA to R.IRA conversion, but will be starting in my 40s. You don't have to wait. And unless your retirement funds are in a Roth, you want to get them out before they grow, and let them grow in a Roth or taxable account.

Read this if you haven't:
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

semiretired31

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #2 on: February 19, 2017, 06:50:56 PM »
Thank you.

gerardc

  • Pencil Stache
  • ****
  • Posts: 767
  • Age: 40
  • Location: SF bay area
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #3 on: February 19, 2017, 07:11:04 PM »
Yes, the first priority is to withdraw from taxable accounts until they're empty first, then retirement accounts.

Within retirement accounts, you can slowly move pre-tax money (401k and/or traditional IRA) to after-tax money (Roth IRA) so that your taxable income fills most of the lowest tax brackets each year, so you pay close to 0 tax on them. Then when you're ready to withdraw from retirement accounts, everything is in Roth already.

Mrtreasuretoupee

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #4 on: February 19, 2017, 10:40:27 PM »
I'm planning on a similar plan as the OP.  I'm only doing 10% in 401k and rest in brokerage. After watching a man die of a heart attack at my work I decided that if my health starts to decline I'm out. Realistically that can happen before 59 1/2 so I have to have some money that I can get to before that age.

I'm thinking retire (semi retire) at 55. Only have 4 1/2 years until 401k, then 4 or more years until Social Security.  Is it foolish to plan on social security by 2035?

damnedbee

  • 5 O'Clock Shadow
  • *
  • Posts: 70
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #5 on: February 21, 2017, 10:20:56 AM »
Your plan and stats are freakishly similar to mine, so your plan makes sense from where I'm standing. I have a few unknowns, such as how a move to a LCOL area might impact my expenses and timing of semi-retirement. I'm only a year into an actual FIRE plan, so I'm still trying to figure out the right mix between tax-deferred and taxable accounts.

Altons Bobs

  • Bristles
  • ***
  • Posts: 339
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #6 on: February 21, 2017, 10:45:41 AM »
I think that's how all people are doing it when they're doing ER - with non-401k money, there is no way to access 401k without penalty before 59 1/2. 

Davids

  • Pencil Stache
  • ****
  • Posts: 977
  • Location: Somewhere in the USA.
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #7 on: February 21, 2017, 11:10:17 AM »
For those planning to retire at say 52 or 53 remember if you leave your current job at age 55 you will be allowed to access the 401k funds from that job penalty free. Just saying it might be wise if you 52 or 53 to just stick it out for a couple more years.

anotherAlias

  • Pencil Stache
  • ****
  • Posts: 508
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #8 on: February 21, 2017, 11:19:33 AM »
I think that's how all people are doing it when they're doing ER - with non-401k money, there is no way to access 401k without penalty before 59 1/2.

People do use non-401k money when they ER but you can, and other people do, access their 401k before 59 1/2 without penalty.  There are 2 main ways to do it.  One is the Roth pipeline and the other is doing a 72t distribution.  Both of these have been discussed widely on the forums if you do a search.  I thought there was a sticky for this, but I can't find it right now.

ETA: missed the link in an earlier post in this thread.
« Last Edit: February 21, 2017, 11:21:38 AM by justchristine »

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3700
  • Age: 45
  • Location: USA
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #9 on: February 21, 2017, 03:28:34 PM »
ETA: missed the link in an earlier post in this thread.

Apparently so did nearly everyone else.

You can, yes, you can access 401k funds well before 59. Read the link, it's a game changer.

semiretired31

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #10 on: February 21, 2017, 03:52:44 PM »
For those planning to retire at say 52 or 53 remember if you leave your current job at age 55 you will be allowed to access the 401k funds from that job penalty free. Just saying it might be wise if you 52 or 53 to just stick it out for a couple more years.

This is interesting...  didn't know that.  Unfortunately, it would be very difficult for me to predict the job I will be in when that comes around (or at least from this view).  But, a great nugget... none the less.  Thanks!

semiretired31

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #11 on: February 21, 2017, 03:57:47 PM »
ETA: missed the link in an earlier post in this thread.

Apparently so did nearly everyone else.

You can, yes, you can access 401k funds well before 59. Read the link, it's a game changer.

I guess my original point was that I'm fine with being semi-retired on my taxable accounts and letting my 401(k) grow until actual retirement (or whenever I need to access it thereafter).  The laddering is interesting.  Does that mean I shouldn't be contributing to my 401(k) still then?  Or, just up until the match?  If I'm actively trying to move out of that investment vehicle, doesn't seem like there is much of a point to continue contributing.   

So... what you the group seems to be saying is that I can use my existing plan and be fine.  But, there might be a better way that gets me to FIRE quicker?

Gimesalot

  • Pencil Stache
  • ****
  • Posts: 664
Re: Semi Retire on Non 401(k) until 401(k) is available?
« Reply #12 on: February 22, 2017, 01:31:22 PM »
ETA: missed the link in an earlier post in this thread.

Apparently so did nearly everyone else.

You can, yes, you can access 401k funds well before 59. Read the link, it's a game changer.

I guess my original point was that I'm fine with being semi-retired on my taxable accounts and letting my 401(k) grow until actual retirement (or whenever I need to access it thereafter).  The laddering is interesting.  Does that mean I shouldn't be contributing to my 401(k) still then?  Or, just up until the match?  If I'm actively trying to move out of that investment vehicle, doesn't seem like there is much of a point to continue contributing.   

So... what you the group seems to be saying is that I can use my existing plan and be fine.  But, there might be a better way that gets me to FIRE quicker?

Most likely, you will get to FIRE faster if you max all of your tax-defered options first before investing in taxable accounts.  Of course the specifics vary but in general that's the best way.

 

Wow, a phone plan for fifteen bucks!