Too old for early retirement?

[bforte]

Hello fellow Mustachians! LOVE the blog and am excited to finally be part of the forums!

Unfortunately, although I became interested in personal finance in my 20's, a disastrous divorce/bankruptcy in my 30's and some bad luck with a house I bought in 2008 has forced me to start over at the relatively advanced age of 41. Since there's no equity in my home at this point and only a little more than $35K in my retirement accounts, I'm wondering how to best proceed. (I also have about $7K in emergency savings.)

I make about $42K a year after taxes and as the primary breadwinner (1 child) can only save about 50% of my take home pay (although I'm trying to apply Mustachian principles to increase that amount). Since this would mean an "early" retirement at the age of about 58, is it even worth it? And if so, what should the plan be? Do I live off of savings until age 59 1/2 when I can start tapping my Roth IRA (allowing my traditional IRA to keep growing)? Or is there a more tax-efficient way to approach it?

Thanks in advance for your input!

[Lans Holman]

is it even worth it?

Depends on how you value your time.  Is financial freedom for seven good years of your life worth 17 years of frugality and careful investing?  I think for most people on this forum frugality is not just the means, it's an end unto itself.  If that doesn't describe you and higher spending levels over the next few years are going to truly make you happier, then by all means keep working to fund those spending levels.  As far as I'm concerned, even if you were only going to be able to retire one year early, that year is worth a lot, especially if the sacrifices you would be making aren't really sacrifices.

[Rebecca Stapler]

Saving 50% of your take home pay is a good start, especially on $42k/year and with a kid! (I'm still working on getting to any savings rate -- I'm still paying down student loans) Getting accustomed to a lifestyle of spending less is worth it -- it's a skill / habit that will last you forever, and continue to pay off. Who knows? Maybe there's a way to cut the spending / increase the savings even more, and you can retire even earlier.

[bforte]

Thanks for the replies so far!

Just to clarify, I'm not questioning the frugality aspect of it (that's pretty much ingrained at this point!) as the proper way to invest the savings.

Does a large taxable account make sense if I'll only need that money for less than 2 years before I can tap my Roth? Shouldn't I save just enough (beyond emergency funds) to live on for that short amount of time and shovel the rest into my retirement accounts?

[matchewed]

I'd max your retirement accounts regardless. It lowers your tax bill and the older you are the easier it is to access that money.

[Rebecca Stapler]

Thanks for the replies so far!

Just to clarify, I'm not questioning the frugality aspect of it (that's pretty much ingrained at this point!) as the proper way to invest the savings.

Does a large taxable account make sense if I'll only need that money for less than 2 years before I can tap my Roth? Shouldn't I save just enough (beyond emergency funds) to live on for that short amount of time and shovel the rest into my retirement accounts?

Yes, but I wouldn't put it into savings at this point. You would lose the advantage of having it invested. Given your savings rate, you should be able to sock away the first 2 years' funds by using the last 2 years' savings from your job; or you could withdraw principal from your Roth IRA without a penalty. There are other ways to move $$ from a retirement account so you can use it sooner without being penalized, and I'm sure more legit Mustacians (the ones with real assets, not a noob like me, who is still paying off debt) will chime in about that method.

[Joet]

I think the question of 'enjoy now' vs 'enjoy later' is a topic not well understand on this forum. Financial independence at any cost is the mantra , it seems. I think a balanced approach is best personally. You will see my curvy behind all over the world in my 30s/40s, I will never be this young/capable again unfortunately.

[matchewed]

I think the question of 'enjoy now' vs 'enjoy later' is a topic not well understand on this forum. Financial independence at any cost is the mantra , it seems. I think a balanced approach is best personally. You will see my curvy behind all over the world in my 30s/40s, I will never be this young/capable again unfortunately.

Interesting enough I think that topic is quite well understood just answered in a different way. I would say that FI at any cost is misconstruing the ideas and almost everyone here believes they are also taking a balanced approach.

Back on topic to the OP. You're right on the plan. If you plan on retiring at 58 it is perfectly reasonable to have enough in taxable accounts to cover your living expenses for a year and a half until you hit retirement age. It's not the only way to do it but it is a way. The only more tax efficient way I can think of is to use your Roth at 58 and drawdown from your contributions. They won't be taxable and if you keep putting away the max each year you'll have enough to cover you for the year and a half.