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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: jom2025 on October 06, 2016, 05:22:09 PM

Title: advice on how to fire at 53 with assets tied up in 401k and pension
Post by: jom2025 on October 06, 2016, 05:22:09 PM
Hello fellow MMM members. Im throwing this out for some help on my situation . If you could please offer any helpful advice it would be appreciated.
I have a 401k and a pension, no other liquid money that i could access penalty free. Prior to age 59 1/2.
 I would like to possibly pull off an early retirement. Im under 55 so i dont think i can access 401k without penalty.
Im entitled to a cash out or a monthly income of my pension.
Although im being told if i take a cash out on my pension i would have to place it immediately in a IRA or be penalized heavily. And then again i could not access it until age 59 1/2.
If i could obtain a source of income to sustain two of us until SSI kicks in at 62.
I have talked to two different financial advisors one being Vanguard.
I have discussed 72 T with both. They seem to come across as im too young to pull the trigger. And neither liked the idea of the 72T.
I have read so much about i dont need an advisor. But im out of ideas of how to pull this off.
My wife and i are on a strict budget and we feel we could survive if we could come up with a source revenue.

Title: Re: advice on how to fire at 53 with assets tied up in 401k and pension
Post by: jim555 on October 07, 2016, 10:06:03 AM
Rollover the 401k to an IRA and take the 10% hit for what you need to live on? 
Roth conversions will help you in 5 years but you need to pay the tax now and that will be a problem.
72T might work, but inflexible and strict on the rules.
Can you take the pension as an annuity at 55?
Then you need to consider health insurance as a factor.
Title: Re: advice on how to fire at 53 with assets tied up in 401k and pension
Post by: Mother Fussbudget on October 07, 2016, 10:56:14 AM
First, I'd recommend reading the MadFientist's post How To Access Retirement Funds Early ( where he does the math on taking withdrawals including the 10% penalty, and had some surprising conclusions.  Sounds like it's right up your alley.

Second, I'd recommend talking to a retirement specialist - your tax person, or someone else (tax attorney?) you can discuss the details of your personal situation with.  I'm not a tax guy, and am still surprised by some of the convoluted rules.

From your post, it's hard to say how old you are, but realize doing a Roth Conversion Ladder requires the converted funds be held in the Roth for 5 years prior to withdrawal to avoid an penalty.  If you're too close to 59-1/2 to start a Roth Conversion ladder to use it between 55 and 59-1/2, you'll still be able to withdraw from your rollover IRA between now and when you turn 59-1/2 by taking the 10% penalty.  This is where having a full Case Study would be helpful... please strongly consider doing that.  At least refer to the Case Study Spreadsheet ( for your own use.

Think ahead:  estimate your post-FIRE annual budget needs, total annual income after FIRE, and calculate taxes owed.  Be aware of the tax bracket you'll fall into once you withdraw enough income to meet those needs.  You'd have to pay the 10% penalty + regular income tax rate.  If you're 52 or 53, start a "rollover IRA" for your 401K.  Then withdraw 2x years of income - converting 1 year's income into a Roth for use after 5 years.  Do the same thing for the next couple of years until your 5-year-conversion ladder becomes eligible for withdrawal.

Consider your tax bracket.  Since you're already paying 10% on the IRA withdrawal, moving from the 15% to the 25% tax bracket would mean you're paying an effective 35% on any IRA withdrawal dollars above the 15% limit (for Married filing jointly, that's $73,500).

And remember... after 59-1/2, you have 10-1/2 years to convert rollover IRA's into a Roth without having to take 'annual minimum distribution' withdrawals beginning at age 70.  This may or may not make sense for you - do the math, AND include your health prospects.  Everyone's situation is different.  Who knows what the future will bring?  But if you expect to live to be 90, then converting to a Roth might make sense as the withdrawals from a Roth are tax free, and require no annual minimum distribution.
Title: Re: advice on how to fire at 53 with assets tied up in 401k and pension
Post by: Catbert on October 07, 2016, 11:21:52 AM
Look more into the 72t.  While the rules are pretty inflexible at 53 I think you're in the sweet spot for possibly using.  If you were in your 30s then 72t wouldn't allow access to much of your money and would lock you into a distribution schedule for 20-30 years.  At 53 you're only dealing with 6 or so years.