Early retirement

 poses several challenges, such as restrictions on withdrawals from tax-advantaged accounts and long retirement years. This page presents resources to those who are considering early retirement.

Withdrawing from your portfolio
There are several ways to withdraw from your portfolio without incurring the 10% penalty applicable to retirement accounts.


 * Taxable account.
 * Substantially Equal Periodic Payments.
 * Withdrawal of contributions and conversion amounts from a Roth IRA. Note that contributions can be withdrawn penalty free at any time while a conversion amount must stay in a Roth IRA for five years since the first day of the year in which a conversion is done.
 * 457(b). Non-rollover contributions to 457(b) is exempt from the early withdrawal penalty.
 * Withdrawal from 401(k) at age 55. If you leave the company offering the 401(k) plan at age 55 or later, you do not have to pay the 10% penalty to withdrawal an amount from your 401(k).  See 401(k) Resource Guide - Plan Participants - General Distribution Rules for details.

Safe withdrawal rates
You may need to re-evaluate safe withdrawal rates (SWR) if you are retiring early. FIRECalc shows that withdrawing 4% of the initial portfolio value plus inflation adjustments in 49 subsequent years (thus total of 50 years) results in the success rate of 85.1% using the default configuration. Running the same scenario with the 3.5% initial withdrawal rate results in the success rate of 98.9%.

On the other hand, the SWR logic may be questioned for early retirees. Early retirees often have some level of flexibility in their spend (e.g. using a dual budget), and in their income (point jobs or part-time jobs remain a possibility), making them good candidates for variable  withdrawal methods. This could allow in turn higher withdrawal rates, without taking undue risks.

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