EJE wrote:I'm 42, married and 3 kids ages 12, 10 and 5. We have saved and invested very aggressively for retirement ever since we started . . .
. . . . .
Current Portfolio Target Allocation: 25% Large Cap Stock; 22% Cash & Bonds; 18% Company Stock; 12.5 Mid Cap Stock; 12.5 Small Cap Stock; 10% Foreign Stock
.EJE wrote:401(k): ~$600k
Roth IRAs: ~ $200k
Taxable Investments & Savings: ~ $100k
. . . . .
One major concern is that almost all of our net worth is in our retirement accounts. I have thought about the possibility of early retirement (or perhaps a career change to a much lower paying / more gratifying position); say in the next 4 to 8 years. Looking for suggestions about how I could avoid penalties for early withdrawals from 401(k) or IRAs if I do choose retire early. Should I reduce my 401(k) contributions to only the level of company match (6%) and then start saving more aggressively in after tax accounts ? Other suggestions ? Thanks in advance.
Jim180 wrote:There is a way to take money out of retirement accounts early without penalty. This is known as IRS Rule 72(t) . If you take "substantially equal periodic payments" such as monthly or annually, based on your life expectancy then you avoid the 10% penalty. I think the IRS has tables for you to determine that. I noticed you have 18% in company stock. If possible you should try to diversify that into mutual funds. How much longer does your spouse plan to work?
Then you may also want to start to pare back your stock market allocation. You have about 70% right now. People at or near retirement should have around a 50/50 mix, or maybe even 40/60.EJE wrote:
My wife has been a stay-at-home mom since our first child was born. She may go back to work part time or as a volunteer when our youngest starts elementary school, but I don't want to count on this income in my financial planning.
ruralavalon wrote:As to asset allocation, in my opinion you should consider a higher allocation to bonds perhaps in the area of 30 - 35%. Wiki article link: Asset Allocation ; and 2011 regression, % stocks vs age .
On asset allocation, I would also be concerned about having 18% of the portfolio in company stock, thats far too risky in my opinion.
Bob's not my name wrote:You don't have anywhere near too much in retirement accounts. ....
Look into gifting appreciated stocks to your kids and having them recognize the capital gains every year, staying under the kiddie tax threshold. But consider the financial aid implications -- having the oldest two in college at the same time could give you a shot at having wealth redistributed your way.
EJE wrote: understand the concern about my 18% allocation in company stock (also mentioned by Jim180). I am familiar with the financial planning advice about not having your income and investments tied to the same company and especially considering my wife is not working outside of the home. The counter point in my mind is the famous advice from Peter Lynch of "buy what you know" and I do feel like I know the company very well. I understand that this is not an accepted doctrine and there are horrible examples such as Enron and the like. I will also give this more thought and may take your advice and trim this back further at next opportunity.
ruralavalon wrote:Welcome to the forum .
Here is a fairly standard view of the general investing priority (best priority plan depends on individual tax situation, quality of 401k offerings, etc.), that could help you accommodate the idea of career change/job change/early retirement while avoiding the dilemma about early withdrawals from the 401k or IRAs:
1. Company plan (401k, 403b, etc.) up to the company match. The company match is free money. Take it!
2. Roth IRA or deductible Traditional IRA up to maximum contribution limit, depending on personal circumstances and eligibility. In an IRA you can select the investments yourself; low-cost index funds that may not be available in your company plan.
3. Company plan up to maximum contribution limit. Most plans have some low-cost options. You can balance your asset allocation with your IRA.
4. Taxable Investing
This is a broad outline suitable for most (beginning) investors. If you are fortunate enough to yet have funds available for taxable investing, you may wish to learn about using tax-advantaged HSA, Coverdell, and 529 accounts.
Wiki article link: Prioritizing investments ; and umfundi's post, Savings and Investing Precedence
On item #2, if you are eligible for a Roth IRA, and it otherwise makes sense for you, using a Roth IRA builds up money you can withdraw early. "Regular Contributions can be withdrawn at any time with no tax and no penalty." Wiki article link: Roth IRA
Sometimes when the company plan (401k/403b) has only very high cost choices, its best to skip maxing the 401k or 403b (#3) and go directly to taxable investing (#4). 401k, Expensive or mediocre choices
In any event you are already doing the most important thing, that is saving aggressively. Forum thread, The Savings Rate
I hope that this helps.
nedsaid wrote:Congratulations, you are doing well and should be giving the rest of us advice.
A few observations. Reduce your company stock if you can. This might be your 401k match and the company may not allow you to sell. 18% of your retirement in one company is too much.
Your asset allocation looks good. Start tapering your stocks down and get more bonds. If you want to retire in 4-8 years, then you need to invest more like someone who is in their late 50's. If your job is wearing you down, your idea of going into something different is a good one. So how much less aggressive to invest depends on your retirement date.
Make some realistic projections of what you need to retire on. Your probably should get your kids through college first before retiring. People often are not realistic about what it really takes. The other important issue is health insurance. If your lifestyle is relatively modest, your goals will of course be a lot easier to achieve.
Gosh, I think you are doing things right. Congratulations.
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