26 min
Income Ideas for Retiring Early (Part 2) The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery
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- Investing
Early Retirement, doesn’t it sound great?
On last week’s show we began to lay out the 6 steps you should consider before pulling the trigger on early retirement. We also looked at some specific risks that will challenge your notion of retiring early, but if you prepare properly, you just might be able to pull it off!
So how do you do it? How do you bridge that income gap between your original retirement date and your NEWLY revised EARLY retirement date? Stick around because that is what we will be taking about on today’s podcast.
Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you are a client, I can’t give you advice because I don’t know you. So, think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser………….right? that’s only common sense.
(0:55) Practical Planning segment: Continuing our discussion on income ideas for retiring early we need to find a way to bridge the gap between our original retirement date and our new, early retirement date.
Last week, we talked some specific risks we have to think about when confronting an early retirement, things like market risk, sequence of returns risk, inflation, and longevity. But when it comes right down to it… we need income! That is what it’s really all about whether you retire early, on time, or later! It all boils down to income, and where that will come from.
So, hopefully you have looked at those 6 steps that we discussed last week, and you calculated your retirement income needs. AKA, you did a budget! Click Here For a Link to the Budget Worksheet!
Maybe you discovered some areas where you can save quite a bit, you can cut some expenses and if retiring early you may actually need to cut some expenses in order to handle the longevity risk we talked about earlier.
So, you have completed a budget, you have calculated your net worth, listed those amounts by account type account type, and you've calculated your level of Social Security for both you and if married, your spouse.
(4:15) Example: If we're looking at an early retirement, let's say age 55, that is way earlier than you can start Social Security. The earliest you can start Social Security is age 62. We need to find a way to at least bridge an income gap until you can turn on your Social Security.
Now, I am not saying that it makes sense to turn on Social Security at age 62. That is a very individual decision that takes a lot of thought and calculations as to when is the best time to start Social Security.
In this example of retiring early at age 55 and you need income, what are the options to supply that income? Let's make a further assumption that you have no additional savings except tax deferred income. 401ks, T IRA’s, maybe a Roth IRA (tax free for qualified distributions)
(6:00) Options:
W/D and pay tax and penalty……. Obviously not a good idea but it is an option. So, what's a better option than that? Traditional IRA: 72t distribution. Withdraw from your IRA account without the 10% penalty! How do you do that? 401k Rule of 55.
Bear in mind that both of these tactics have eligibility requirements and limitations, income taxes are due on all withdrawals. You're only avoiding the early withdrawal penalty charged by the IRS of 10%.
If the pandemic is the reason that you are retiring early, another option we need to discuss is that the pandemic will not last forever. If you use one or more bridge income strategies now, you might consider going back to work in a few years to help reboot your nest egg. You can always retire again later on!
(11:15) Example: Now let's run through an example where your original retirement date might have been 65, 66, or 67. But let’s say you'
Early Retirement, doesn’t it sound great?
On last week’s show we began to lay out the 6 steps you should consider before pulling the trigger on early retirement. We also looked at some specific risks that will challenge your notion of retiring early, but if you prepare properly, you just might be able to pull it off!
So how do you do it? How do you bridge that income gap between your original retirement date and your NEWLY revised EARLY retirement date? Stick around because that is what we will be taking about on today’s podcast.
Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you are a client, I can’t give you advice because I don’t know you. So, think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser………….right? that’s only common sense.
(0:55) Practical Planning segment: Continuing our discussion on income ideas for retiring early we need to find a way to bridge the gap between our original retirement date and our new, early retirement date.
Last week, we talked some specific risks we have to think about when confronting an early retirement, things like market risk, sequence of returns risk, inflation, and longevity. But when it comes right down to it… we need income! That is what it’s really all about whether you retire early, on time, or later! It all boils down to income, and where that will come from.
So, hopefully you have looked at those 6 steps that we discussed last week, and you calculated your retirement income needs. AKA, you did a budget! Click Here For a Link to the Budget Worksheet!
Maybe you discovered some areas where you can save quite a bit, you can cut some expenses and if retiring early you may actually need to cut some expenses in order to handle the longevity risk we talked about earlier.
So, you have completed a budget, you have calculated your net worth, listed those amounts by account type account type, and you've calculated your level of Social Security for both you and if married, your spouse.
(4:15) Example: If we're looking at an early retirement, let's say age 55, that is way earlier than you can start Social Security. The earliest you can start Social Security is age 62. We need to find a way to at least bridge an income gap until you can turn on your Social Security.
Now, I am not saying that it makes sense to turn on Social Security at age 62. That is a very individual decision that takes a lot of thought and calculations as to when is the best time to start Social Security.
In this example of retiring early at age 55 and you need income, what are the options to supply that income? Let's make a further assumption that you have no additional savings except tax deferred income. 401ks, T IRA’s, maybe a Roth IRA (tax free for qualified distributions)
(6:00) Options:
W/D and pay tax and penalty……. Obviously not a good idea but it is an option. So, what's a better option than that? Traditional IRA: 72t distribution. Withdraw from your IRA account without the 10% penalty! How do you do that? 401k Rule of 55.
Bear in mind that both of these tactics have eligibility requirements and limitations, income taxes are due on all withdrawals. You're only avoiding the early withdrawal penalty charged by the IRS of 10%.
If the pandemic is the reason that you are retiring early, another option we need to discuss is that the pandemic will not last forever. If you use one or more bridge income strategies now, you might consider going back to work in a few years to help reboot your nest egg. You can always retire again later on!
(11:15) Example: Now let's run through an example where your original retirement date might have been 65, 66, or 67. But let’s say you'
26 min