Savings Plan to Retire Early

[Kurta234]

I had a quick question on retiring early. What investments would one make to do this? I know IRA's are a great place to put your money, but wouldn't they incur a penalty to retire early then? So instead of focusing on IRA's, if I want to retire early, should I focus on some other vehicle of investment? Any advice is appreciated.

Thanks!

[nereo]

I had a quick question on retiring early. What investments would one make to do this? I know IRA's are a great place to put your money, but wouldn't they incur a penalty to retire early then? So instead of focusing on IRA's, if I want to retire early, should I focus on some other vehicle of investment? Any advice is appreciated.

Thanks!

Welcome Kurta234

1st) There are several ways of withdrawing funds from an IRA or a 401(k) penalty fee before age 59.5.  SEPPs and conversion ladders are two such methods.  For most, the tax advantages of the former far outweigh the logistical hurdles necessary to access that money.

2nd) most people who wish to RE will have both tax-advantaged contributions (e.g. IRAs, 401(k), HSA etc) as well as post-tax accounts ("normal" investment accounts). 

this blog post might be helpful:
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

[MDM]

1st) There are several ways of withdrawing funds from an IRA or a 401(k) penalty fee before age 59.5.  SEPPs and conversion ladders are two such methods.  For most, the tax advantages of the former far outweigh the logistical hurdles necessary to access that money.

2nd) most people who wish to RE will have both tax-advantaged contributions (e.g. IRAs, 401(k), HSA etc) as well as post-tax accounts ("normal" investment accounts). 

this blog post might be helpful:
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

+1

See also http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.

[Taran Wanderer]

Remember that an IRA and a 401k are just types of accounts. For the investments held within those accounts, use low cost index funds and dollar cost average. As a bonus, right now everything is on sale!

[Kurta234]

Hey Thanks everyone for the responses! Those were the exact articles I was looking for. I kept going through the list of all Mr. Money Mustache's posts but couldn't find the correct topic.

A quick question. When you say low cost Index fund, I'm assuming you mean no-load, minimal fees, and a low expense ratio. I was wondering, what would you consider a low expense ratio, as I've soon ratios going all over the board!
 

[Frankies Girl]

Hey Thanks everyone for the responses! Those were the exact articles I was looking for. I kept going through the list of all Mr. Money Mustache's posts but couldn't find the correct topic.

A quick question. When you say low cost Index fund, I'm assuming you mean no-load, minimal fees, and a low expense ratio. I was wondering, what would you consider a low expense ratio, as I've soon ratios going all over the board!

Your description might fit many other mutual funds other than index funds. What we all mean when we say low cost index funds is a fund that allows for broad market exposure, low operating expenses and low portfolio turnover - an index of available stocks, rolled into a specific mutual fund (or ETF) and specifically called an INDEX fund. No load fund/low expense ratio/fees should be a given. Where most mutual funds out there might have as little as 10-100 individual companies in its makeup, an index fund will hold hundreds, even thousands of different companies.

Index funds are the definition of "diversification."

A great example is Vanguard's Total Stock Market Index Fund Admiral Shares (VTSAX).

https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT

From this mutual fund's description:
Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency. Investors looking for a low-cost way to gain broad exposure to the U.S. stock market who are willing to accept the volatility that comes with stock market investing may wish to consider this fund as either a core equity holding or your only domestic stock fund.


Another decent example is Fidelity's Spartan Total Market Index Fund - Advantage Class (FSTVX).
https://fundresearch.fidelity.com/mutual-funds/summary/315911800



What is a low expense ratio? Well, Vanguard's VTSAX and Fido's FSTVX are 0.05% so they're the benchmark. I personally consider anything over 0.50% a very high expense ratio because I invest pretty much only in index funds.