early retirement

L1: early retirementI’m 50 and have 31 years in my present occupation. I am planning on starting my withdrawls inJan 06and continue working for another 5 years. I understand the risk of having to “live” with the amount for 9+ years but my reasons are, that I can bank the money and when I do retire I’ll have a nest egg that will allow me to do with it as I see fit.I’ve checked the tax brackets andthe increased income will not put me into a higher bracket. Does this seem feasible?2005-10-25 14:02, By: woodhook13, IP: [139.55.113.226]
L2: early retirementFeasible yes,butlogical no.
The funds are growing in a tax-deferred plan. Toremove them, you would have to payincome taxand then only have the after tax amount (60% to 70%)to invest.
Do the numbers, but you would probably be money ahead leaving the funds where they are and then consider possible alternatives when youget ready to retire.
Or… am I missing something? 2005-10-25 14:24, By: Gfw, IP: [172.16.1.71]

L2: early retirementWell, your plan is sound as long as one of the items you wish to do with your money is to pay extra taxes and lose out on the growth you would have earned on those dollars you used to pay the taxes. Pardon me, but your idea is not wise.
Run these numbers. Invest $100,000 in a tax-deferred plan for 30 years earning 8%. Invest another $100,000 in a taxable investment for 30 years also earning 8%, but each year you pay taxes on the earnings at the rate of 31%. Which method gives you the biggest pile of money at the end of 30 years? (Hint: it’s the tax deferred investment.) Now assume you withdraw all of the money from the tax deferred investment at the end of the 30 year period and pay taxes on the earnings at 31%. Which investment has the biggest pile of money after taxes? You guessed it … the tax deferred mehtod beats the non-tax deferred method by a long shot.
Hate to be so blunt but this idea requires drastic action.
Jim2005-10-25 14:37, By: Jim, IP: [70.184.1.35]

L2: early retirementI have dozens of clients who have been in your situation and the only time drawing before you retire makes sense is if you need extra income for some reason and need it for more than a year or so. I strongly urge to heed gwf’s advice and do not draw until you retire. also remember, if you wait 5 years before you start drawing, you’ll be able to draw much more because you’ll be older and you’ll have more money (hopefully). Interest rates are more likely to be higher than now also.2005-10-25 14:39, By: john, IP: [68.187.171.50]

L2: early retirementI understand the concept of money growing if I leave it. What good does it do me to have tons of $ and too old or illto enjoy it. As I understand the “72T law” a person can’t reward theirselves at retirementwith a new car, boat, etc. Like most, I done without things, waiting for the golden key, which is now locked up. If my calculations are correct, I can draw the max amount allowed, continue to work,invest the income, and after 5 years or so, havemoney available for whatever I see fit, and most important, if I draw 5% and it makes 8%, I’ve still made some gains. I wouldlove to leave my kidsa hugh inheritance, but my pension is mine to enjoy, not save for them. I don’t have any desire to see my money double in the next 15 years or so, but my advisor does. Same job 31 years, same wife 30 years, same home 29 years, I not a big spender! I would like some more thoughts. Thanks everyone, 2005-10-26 05:58, By: woodhook13, IP: [24.159.148.252]

L2: early retirementWhy do you want more ideas ? You have your mind made up to do it your way, and have rejected all valid comments of why others do not agree with you.
Here is my idea for you to reject — Discontinue 401-k, IRA, or other contributions to retirement plans. That will provide you with additional income (minus applicable taxes). If you are working for a company with a 401-k, you can leave that company at the beginning of the year you will become 55, and start to withdraw funds without the 10% penalty. (This is not applicable to IRAs.) Between now and then, you can borrow from the 401-k up to $ 50,000 TAX-FREE, and then repay it after you retire at 55, but you’ll need to withdraw $ 75,000 to repay the $ 50,000 loan, and have the extra money for the taxes.2005-10-27 00:10, By: dlztaxes, IP: [4.175.9.13]

L2: early retirementI can understand the ‘botton line’ relevancies of the responses to woodhook because they make sound financial sense, but I can certainly sympathize with him. I’m 54 and began taking 72t distributions last January. I retired after a buy-out offer with 30 years at the same company. I earned every gray hair and wrinkle I own. I have close to a million dollars in my IRA portfolio (I rolled my 401(k) into it after retirement). In the meantime I get about four thousand a month to live on until I’m 59 1/2. After the mortgage, car payment, gasoline, etc., my wife and I splurge on pizza every Sunday night.
I have about 20 grand in ’emergency’ funds that is depleting slowly but surely, and it’ll be gone long before I’m 59 1/2. I’m currently perusing want ads for part time work. I know I can’t change the laws and I’m just venting, but this seems a bid unfair to be sitting on that pot of gold and be unable to touch it or evenborrow against it without being pilloried by Uncle Sam.Plus, there’s no COLA in the 72t payments regardless of inflation. That seems illogical.
The upside is that I’m looking forward to getting older so I can take what is mine!
2005-10-28 11:54, By: francis3, IP: [151.203.11.158]

L2: early retirementIf someone comes to me for advice in situations like Francis”,my first questions are his age and if he has a 401-k at work. If he is 53 , I would try to work out a financial plan whereby he could get together enough money to get to 55 (or January of that year), at which time he would be eligible for exemption from the 10% penalty for “early” withdrawals. Then he could take any distributions because he has severed his employment. The last thing I would agree to, because I would rarely suggest or recommend it, is rolling a 401-k into an IRA because you would be subject to penalties before 59 1/2 (or 5 years if longer), especially if you “bust” the SEPP 72-T plan. Even though you can borrow up to $ 50,000 against a 401-K account, it may be required to be repaid upon leaving the company, which would be too short-term to be practical.
For those in their early 50s, it is usually more complicated to use this approach, but I would look to alternatives first because so many developments can cause someone to “bust” a SEPP 72-T plan over a 9-year period.2005-10-28 12:11, By: dlztaxes, IP: [4.175.9.66]

L2: early retirementThanks for the feedback, diz. In my case I was under 55 when Ieft the company, therefore I would not be able to avoid the 10% penalty on the 401(k)if I withdrew cash. I don’t believe you can ‘age in’ to the 401(k) penalty avoidance by waiting to turn 55. In order to maximize my 72t distributions, I rolled the 401(k) into my IRA.2005-10-29 09:19, By: francis3, IP: [151.203.11.158]

L2: early retirementIn most cases, you can leave your 401-K with your employer or his administrator. Then when you reach 55, or possibly in January of the year you will become 55, you can start withdrawals from your 401-k WITHOUT THE 10% PENALTY. However, you must be able to “afford” to finance yourself until that point. At 53 or 54 there is often a way to do that. Once you ROLLOVER from a 401-K to an IRA, you must wait until 59 1/2 or use a SEPP 72-T if you need money before 59 1/2, and realize the consequences if you ever need more than the amount you set up in the SEPP 72-T plan as your annual withdrawals.2005-10-29 16:26, By: dlztaxes, IP: [4.175.9.245]

L2: early retirementCorrection… in order to escape the 10% penalty tax, seperation from service must occur on, or after, age 55. Terminating prior to age 55 and then waiting doesn”t count.

72(t)(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS. –Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
72(t)(2)(A) IN GENERAL. –Distributions which are —
72(t)(2)(A)(v) made to an employee after separation from service after attainment of age 55,
2005-10-29 16:51, By: Gfw, IP: [172.16.1.70]

L2: early retirementI am in a similar situation. Now 54, I retired at 50 (after 30 long years),set up a SEPP with my entire 401 and IRA (cash pension) together (about 1.2 M) to maximize the withdrawal amount. After two months I found this website, learned a few thingsand immediately busted my SEPP plan and did a re-org … I setup another SEPP plan after dividing my $$$ into 3 IRAs. I draw SEPP off two of them (about 1 M worth) and kept the remaining 200K in a separate IRA without a SEPP.All accounts arecompounding interest taxfree – and I have immediate access to lots of money (200K) if I feel the urge to splurge – without busting my SEPPs again. I have bought a new car, new motorcycle, and taken a couple of big trips by chipping off thenon-SEPP IRA. Yes – I have had to pay 10% withdrawal penalties a couple of times – but the tax-free compounding has more than made up theadditional taxes. And having that separate account makes me feel richer and gives me some “attitude” money …
Not for everyone – but good for early retirees withgood-sized accounts. Kind of like having your cake and eating it too.2005-11-08 12:28, By: DMA, IP: [24.91.151.191]