Author Topic: Considering the 4% Rule and Early Withdrawal Penalties  (Read 817 times)

Snowman99

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Considering the 4% Rule and Early Withdrawal Penalties
« on: April 11, 2018, 12:15:38 AM »
Hi. We are maxing 401k and Roth IRA, and will be able to start putting away more into a taxable once some needed home renovations are paid for. This got me wondering about the "4% Rule" and how it applies to early retirement when you have substantial funds from which you can't withdraw without penalty until you are 59 and 1/2 years old. In other words, is there a formula or rule of thumb I can use for knowing how long my funds outside tax advantage accounts will last until I reach 59 and1/2? Obviously they don't need to last forever. I just need to know when there will be enough there to get me to the point when I can withdraw from the 401k and IRA without penalty. I'm 36 and looking to retire as soon as possible. Thanks.

MDM

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smisk

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Re: Considering the 4% Rule and Early Withdrawal Penalties
« Reply #2 on: April 12, 2018, 08:21:49 AM »
I came here to post basically the same thing! I'm 26 and am on track to retire at 41 assuming I maintain my current spending, get a 2% raise each year and a 2% return on my portfolio. Obviously that's a lot of assumption but I feel my numbers are fairly conservative.
It did get me thinking, I have a 401k and Roth IRA which I wouldn't be able to pull from for awhile.. Also wondering about the possibility of buying a house, which would basically constitute putting a large amount of my portfolio into a non-liquid investment, but might be cheaper than renting in the long run. Also I'm single and all this could change if I get married/have kids. But I feel like it gives me a good point to shoot for at least.

jlcnuke

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Re: Considering the 4% Rule and Early Withdrawal Penalties
« Reply #3 on: April 12, 2018, 09:04:23 AM »
I-ORP is good at helping to tell you which accounts to withdraw from when, and there are many ways to withdraw without penalties (see link MDM posted).

zolotiyeruki

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Re: Considering the 4% Rule and Early Withdrawal Penalties
« Reply #4 on: April 12, 2018, 12:34:53 PM »
You're referring to the issue of "where do I get money until I hit 59.5"?  There are a couple of ways to approach it, and they're not mutually exclusive.  One think you can do upon ER is start a SEPP from one or more IRAs.  The upside is it gets you (limited) penalty-free access to tIRA funds.  The downside is that once it's in place, it must stay exactly the same, or else you end up paying penalties on *all* the money you withdrew.  A second approach is to withdraw Roth contributions to cover your living expenses, as those are available penalty-free after 5 years.  A third approach is to set up a Roth ladder.  You can set up combinations of these approaches, and see which will work best for you.