401K and the 4% Withdrawal Rule

[LiseE]

Hello all .. newbie here but I've completely drunk the punch and am fully on board with becoming debt free, being less of a consumer and feeling great about it already!  I'm trading in my 6 cylinder super unleaded commuting car for a 4 cylinder regular gas car this weekend after two weeks of reading through this blog!  My husband thinks I've gone crazy.  I'm also ready to cancel our cable subscription but need to be gentle with him .. :)

My question is regarding using the 4% withdrawal rule as a source of income once retired (from our corporate day jobs).  So, we have 600K amassed in our 401K's but we will not be able to draw from that until we're retirement age (we are both 43) ... isn't that correct?  We are maxing out the match percentage from our employers right now and paying down debt aggressively.  Once we've paid off debt we need to start saving in a vanguard account or something other than our 401K's to withdraw and live off of until retirement age .. is this correct?

Any advice would be really appreciated!

[nereo]

My question is regarding using the 4% withdrawal rule as a source of income once retired (from our corporate day jobs).  So, we have 600K amassed in our 401K's but we will not be able to draw from that until we're retirement age (we are both 43) ... isn't that correct? 

No.  There are several ways of accessing that money well before you are past the 59.5 retirement.  One is to set up a SEPP - basically you set up a set of automatic monthly withdraws.  Read about it here:
http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments.  Another method is to roll over some or all of the 401(k) into your Roth IRA.  If you have a ROTH IRA you can withdraw principle after 5 years.

Once we've paid off debt we need to start saving in a vanguard account or something other than our 401K's to withdraw and live off of until retirement age .. is this correct?
The popular advice here is maximize all of your tax-advantaged accounts (your 401(k) but also t-IRA or ROTH-IRA accounts.  If you don't have an IRA you should really consider starting one.  As I said above there are several ways of accessing that money before you are 59.5
After those are maxed out then invest in taxable accounts.  A Vanguard index fund is a good and popular choice here.

welcome and good luck!

[nereo]

Here's a post by MMM outlining a few of the strategies available to you for retiring before you are 59.5 when you have a lot of money in 401(k) or IRA accounts:

http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/