Early retirement investments

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nomorework
Posts: 84
Joined: Wed Apr 04, 2012 4:16 pm

Early retirement investments

Post by nomorework »

44 years old Married
No kids

After some consideration I believe I have saved enough in my 401K and Roth IRA to support us beyond age 60. I can let my current balances bake for the next 16 years and do well

Income After age 60
VA Pension
ROTH & IRA Withdraws
Social Security at 65??

Im wondering what opportunities I should be looking at to support me from ages 48ish-59ish. I'm not planning to retire the day I turn 48, but would like to be able to if desired.

I have approx. $50K a year to invest until I retire and not sure what my options are:
  • Keep maxing out his/her non-taxable accounts and look for a loophole for early withdrawal
  • Taxable accounts
  • Treasury bills
Any suggestions?
ThankYouJack
Posts: 4761
Joined: Wed Oct 08, 2014 7:27 pm

Re: Early retirement investments

Post by ThankYouJack »

I'd set up a Roth ladder or possibly 72t. https://www.madfientist.com/how-to-acce ... nds-early/
lakpr
Posts: 8763
Joined: Fri Mar 18, 2011 9:59 am

Re: Early retirement investments

Post by lakpr »

I will take your word that you have enough in retirement plans, to get you through after age 60 and until you claim Social Security / begin RMDs. All my recommendations below are highly contingent on that premise.

In that case, to plan for early retirement, I suggest to keep making Roth 401(k) contributions every year. When you do early retire, roll over the Roth 401(k) monies into Roth IRA. That would let you withdraw the contributions without any penalty (Roth IRA withdrawals are always considered contributions first, whereas Roth 401k withdrawals are proportional to contributions and growth).

Simultaneously also make Roth IRA contributions (backdoor Roth if necessary, if your income precludes you from making a direct Roth IRA contribution).

Max out the yearly allotment of I-bonds, and view them as a cash component that keeps up with inflation. There is a 1-year blackout period where you cannot withdraw anything from the I-bonds, but after that you will be able to (3-months interest penalty if you pull before 5 years, no penalty afterwards). You can also pull just the amount you need from the I-bonds, as long as each withdrawal is at least $25 and in increments of 0.01 thereafter.

That would be $22,500 ($27,000 once you reach the age of 50) + $6,500 ($7,500 once you reach the age of 50) + $10,000 = $39k per person, $78k per couple that you can withdraw in early retirement with minimal taxes. No point in foregoing these tax advantaged vehicles and investing in taxable. That threshold also keeps getting bumped up to inflation annually.

I'd doubt for a couple with no children, you would spend more than $78k per year, unless you live in Very High Cost of Living location (such as Bay Area, New York City) and unwilling to move.

Edited to add: make sure that your Roth IRA is at least 5 years old before you early-retire. If you haven't started a Roth IRA, start now ... to get the 5-year clock ticking and done-with by the time you early-retire.
sailaway
Posts: 5886
Joined: Fri May 12, 2017 1:11 pm

Re: Early retirement investments

Post by sailaway »

Have you checked into the mega backdoor Roth? Not all 401k plans support this, but it is a great advantage of yours does.
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9-5 Suited
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Joined: Thu Jun 23, 2016 12:14 pm

Re: Early retirement investments

Post by 9-5 Suited »

Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Early retirement investments

Post by Watty »

nomorework wrote: Tue Nov 22, 2022 6:40 pm Social Security at 65??
See this website to see what it suggests the optimal stragety is.

https://opensocialsecurity.com/

It varies but typically for a couple it makes sense for once spouse to start SS earely and the other to wait until later to start SS.

When you get your SS benifit estimate on the SS website be sure to specify that your plan to stop working at 45(or whatever). It defaults to assume that you keep working until you are in your 60s.
nomorework wrote: Tue Nov 22, 2022 6:40 pm Any suggestions?
My situation was different but at least for me having a paid off house made my retirement numbers work a lot better when I retired in my late 50s.
sailaway
Posts: 5886
Joined: Fri May 12, 2017 1:11 pm

Re: Early retirement investments

Post by sailaway »

If you are able to retire early due to a very high income, remember that even paying the 10% penalty to withdraw traditional funds could be better than paying the taxes upfront. If you save 32% going in, then 12% (or 15% in a few years) + 10% penalty is still a tax savings, for example.

As above, there are actually straightforward ways to avoid that penalty, but this is still something to consider.
ThankYouJack
Posts: 4761
Joined: Wed Oct 08, 2014 7:27 pm

Re: Early retirement investments

Post by ThankYouJack »

sailaway wrote: Wed Nov 23, 2022 8:15 am If you are able to retire early due to a very high income, remember that even paying the 10% penalty to withdraw traditional funds could be better than paying the taxes upfront. If you save 32% going in, then 12% (or 15% in a few years) + 10% penalty is still a tax savings, for example.

As above, there are actually straightforward ways to avoid that penalty, but this is still something to consider.
+1, I was thinking the same. Tax arbitrage is a wonderful thing :)
hudson
Posts: 5926
Joined: Fri Apr 06, 2007 9:15 am

Re: Early retirement investments

Post by hudson »

nomorework wrote: Tue Nov 22, 2022 6:40 pm 44 years old Married
No kids

After some consideration I believe I have saved enough in my 401K and Roth IRA to support us beyond age 60. I can let my current balances bake for the next 16 years and do well

Income After age 60
VA Pension
ROTH & IRA Withdraws
Social Security at 65??

Im wondering what opportunities I should be looking at to support me from ages 48ish-59ish. I'm not planning to retire the day I turn 48, but would like to be able to if desired.

I have approx. $50K a year to invest until I retire and not sure what my options are:
  • Keep maxing out his/her non-taxable accounts and look for a loophole for early withdrawal
  • Taxable accounts
  • Treasury bills
Any suggestions?
I wouldn't hesitate to load up on taxable. Look into munis like VWIUX or even safer BMBIX.
Treasuries have no state tax.
Olemiss540
Posts: 1796
Joined: Fri Aug 18, 2017 8:46 pm

Re: Early retirement investments

Post by Olemiss540 »

What's your marginal tax rate (fed and state)? Is the $50k you have available after tax or before tax?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Keenobserver
Posts: 972
Joined: Thu Aug 13, 2015 1:05 pm

Re: Early retirement investments

Post by Keenobserver »

9-5 Suited wrote: Wed Nov 23, 2022 12:14 am Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
Interesting. What income limit do you need to.pay o % capital gains. Would like more info on this please.
unbiased
Posts: 136
Joined: Sat Apr 25, 2020 5:46 pm

Re: Early retirement investments

Post by unbiased »

OP and I are in similar situations.

I am aiming for a 49 retirement next year and funding a little over a decade until my tax advantage accounts are available.

Unfortunately I discovered I bonds only a few years ago, so we’re not going to be able to get as much in there as we wanted, gift box and all. But look into that—is a great backup tax-deferred account.

I have also purchased a bunch of bonds, mostly tax-free, to generate a minimum level of “sleep-at-night” income for the next decade. With the higher yields available, this is surprisingly easier to do than just a year ago.

There’s more to my strategy than this, but that’s how I’m addressing the 50-60 gap.
Florida Orange
Posts: 438
Joined: Thu Jun 16, 2022 2:22 pm

Re: Early retirement investments

Post by Florida Orange »

9-5 Suited wrote: Wed Nov 23, 2022 12:14 am Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
Can confirm. Taxes are often shockingly, delightfully low in retirement, even if you're living on a taxable account, for the reasons cited by 9-5 Suited.
sailaway
Posts: 5886
Joined: Fri May 12, 2017 1:11 pm

Re: Early retirement investments

Post by sailaway »

Florida Orange wrote: Thu Nov 24, 2022 5:57 pm
9-5 Suited wrote: Wed Nov 23, 2022 12:14 am Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
Can confirm. Taxes are often shockingly, delightfully low in retirement, even if you're living on a taxable account, for the reasons cited by 9-5 Suited.
While we could keep taxes at zero for at least a decade, probably two , we will likely chose to be in the 10% bracket by doing Roth conversions and/or starting minimal traditional withdrawals as soon as the elder turns 59.5. This will give us the opportunity to spread our taxes out more evenly over the course of retirement, rather than targeting 0% early on and ignoring the consequences of that once SS and RMDs start.
Florida Orange
Posts: 438
Joined: Thu Jun 16, 2022 2:22 pm

Re: Early retirement investments

Post by Florida Orange »

sailaway wrote: Thu Nov 24, 2022 6:08 pm
Florida Orange wrote: Thu Nov 24, 2022 5:57 pm
9-5 Suited wrote: Wed Nov 23, 2022 12:14 am Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
Can confirm. Taxes are often shockingly, delightfully low in retirement, even if you're living on a taxable account, for the reasons cited by 9-5 Suited.
While we could keep taxes at zero for at least a decade, probably two , we will likely chose to be in the 10% bracket by doing Roth conversions and/or starting minimal traditional withdrawals as soon as the elder turns 59.5. This will give us the opportunity to spread our taxes out more evenly over the course of retirement, rather than targeting 0% early on and ignoring the consequences of that once SS and RMDs start.
That makes sense, but just to be clear, I wasn't suggesting ignoring future consequences. For some people there is a way to keep taxes at or near zero indefinitely.
sailaway
Posts: 5886
Joined: Fri May 12, 2017 1:11 pm

Re: Early retirement investments

Post by sailaway »

Florida Orange wrote: Thu Nov 24, 2022 6:20 pm
sailaway wrote: Thu Nov 24, 2022 6:08 pm
Florida Orange wrote: Thu Nov 24, 2022 5:57 pm
9-5 Suited wrote: Wed Nov 23, 2022 12:14 am Currently early retired (temporarily anyway, pending potential boredom risk :)).

I would strongly recommend at least considering a taxable account to support retirement years prior to age 60. The reason is that you don't end up paying very much tax on withdrawals from a taxable account as a retired person/family. It's very easy to keep your income EXTREMELY low - low enough that in many cases your total income tax will be $0 because of the standard deduction, 0% capital gains bracket, portion of the withdrawal is tax-free basis, etc. I think taxable accounts are often underrated for this purpose, especially if you already have Roth/IRA savings and a pension for the later years.

That said, I would still consider making the full IRA contribution for the year (it's not a huge amount with the contribution limits). And if you select Series I Savings Bonds for a portion of your bond investment, that is both highly accessible and no tax is due on the ongoing earnings until you cash in the bond at a time of your choosing. It's kind of a stealth 'tax deferred' account.
Can confirm. Taxes are often shockingly, delightfully low in retirement, even if you're living on a taxable account, for the reasons cited by 9-5 Suited.
While we could keep taxes at zero for at least a decade, probably two , we will likely chose to be in the 10% bracket by doing Roth conversions and/or starting minimal traditional withdrawals as soon as the elder turns 59.5. This will give us the opportunity to spread our taxes out more evenly over the course of retirement, rather than targeting 0% early on and ignoring the consequences of that once SS and RMDs start.
That makes sense, but just to be clear, I wasn't suggesting ignoring future consequences. For some people there is a way to keep taxes at or near zero indefinitely.
My point was you seemed to be suggesting taxable over tax deferred in order to achieve this. That is going to be a very limited use case, requiring someone to be in a low tax bracket during accumulation.
Florida Orange
Posts: 438
Joined: Thu Jun 16, 2022 2:22 pm

Re: Early retirement investments

Post by Florida Orange »

sailaway wrote: Thu Nov 24, 2022 6:26 pm My point was you seemed to be suggesting taxable over tax deferred in order to achieve this. That is going to be a very limited use case, requiring someone to be in a low tax bracket during accumulation.
I wasn't actually suggesting one over the other. I think 9-5 Suited's point was that the taxes on income from a taxable account in retirement can be surprisingly low. I think this is an underappreciated fact and I wanted to second what he said. I'm sure it doesn't apply to everybody, but I think his point is worth making.
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