Question: how do I get the "income"?

[Tim1965]

I have a really basic newbie question. I often read on this site that a stash of, say, $700,000 will generate income of $28,800 using the 4% rule.

Right, but -- how do you acquire the income? My family's stash is growing but it's all in 401ks and IRAs and the like that we can't access without penalty until age 59.5. Right now we make enough to max out the 401ks and throw some at the Roths as well but that's it. We don't have a ton of money to fund a taxable account, and if I did put the money in there I'd be losing out on the tax savings of the 401k.

Of course I could choose to not reinvest earnings and dividends, but doesn't that make me dependent on how the market's doing? E.g., a year like 2013 the stash might have generated way more income than I needed. But if the market tanked on particular year, I wouldn't have enough.

Plus I WANT to reinvest earnings and dividends, as I'd like to see the stash keep growing.

I feel like I'm missing some key point. Very curious to hear the answer.

[GGNoob]

You don't want the "income" until retirement. Then upon retirement, you would withdraw 4% of your portfolio and that would be your income. That 4% could come partly from dividends and the rest from selling shares of your funds.

The 4% rule basically just means that you should be able to withdraw 4% of your portfolio per year without ever having to worry about running out of money.

[Eric]

My family's stash is growing but it's all in 401ks and IRAs and the like that we can't access without penalty until age 59.5.
...
I feel like I'm missing some key point. Very curious to hear the answer.

The part you're missing is that you CAN access without penalty before 59.5. 

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

[Frankies Girl]

My family's stash is growing but it's all in 401ks and IRAs and the like that we can't access without penalty until age 59.5.
...
I feel like I'm missing some key point. Very curious to hear the answer.

The part you're missing is that you CAN access without penalty before 59.5. 

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

Beat me to it...

I swear we need a pinned post in bright read letters "YOU CAN ACCESS YOUR RETIREMENT ACCOUNTS BEFORE 59.5 WITHOUT PENALTY: HERE'S HOW" on here somewhere. I know I asked the same question when I was a newbie, and it is a mind-blowing concept that very few people just stumble across without asking because that's the party line that we're all given when we first dip a toe into the investing waters.

OP - there's several methods of accessing your investments to get the 4% - I know I'm currently reading Dr. Doom's drawdown strategies here:
https://livingafi.wordpress.com/2014/05/09/drawdown-part-1-the-basics/

Oh, and read all of Jim Collins' stock series that Eric linked to - it is awesome!

[netskyblue]

I'll venture forth with a follow up question...

If you've had a ROTH going for more than five years at the time you ER (say you've been contributing the max for 10-15 years already), how would that affect your laddering plan? 

[GGNoob]

I'll venture forth with a follow up question...

If you've had a ROTH going for more than five years at the time you ER (say you've been contributing the max for 10-15 years already), how would that affect your laddering plan?

If you've been contributing the max for 15 years, then you'd have roughly $80,000 (depending on the max contributions for those years) of contributions you could withdraw without penalty. Then whenever you do a rollover from a tIRA or t401k, that money would be available to withdraw in 5 years.

[hodedofome]

Keep maxing out the 401k, IRAs and Roths and you can worry about how to get the money out when you're ready to retire.

[MrMoogle]

I swear we need a pinned post in bright read letters "YOU CAN ACCESS YOUR RETIREMENT ACCOUNTS BEFORE 59.5 WITHOUT PENALTY: HERE'S HOW" on here somewhere.

It's in the forum's FAQ:
http://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/

But it's obviously not being read.

I'll venture forth with a follow up question...

If you've had a ROTH going for more than five years at the time you ER (say you've been contributing the max for 10-15 years already), how would that affect your laddering plan? 

So there's two seperate 5 year rules for Roths.  One is earnings (not contributions) can't be pulled out until the account is 5 years old (well not exactly, it's a weird "5 years") and the 59.5 rule.  So for early retirement, you're not going to be able to pull out earnings, just contributions, until well into your retirement.

Also, for the Roth ladder, money converted from a 401k or tIRA can't be pulled out until 5 years later (same weird "5 years").  So for the first 5 years of retirement you either need previous Roth contributions, or outside investments (not retirement investments) to live off of. 

I wouldn't worry about all the details until you are close to retirement.  But you CAN get access to 401k and IRA money before 59.5.  You will likely need some outside money though.

[Spork]

OP - there's several methods of accessing your investments to get the 4% - I know I'm currently reading Dr. Doom's drawdown strategies here:
https://livingafi.wordpress.com/2014/05/09/drawdown-part-1-the-basics/

This is exactly what I needed to read today.  Thank you.

[Tim1965]

Thanks for the info, everybody. That clears it up for me.

[Tim1965]

And now I see that MMM addressed this a few years ago, for those who are interested in the topic:

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