Looking for some advice

[Smashfactor18]

Hey guys I am looking for some advice. I am 29 years old and have been contributing to my employers deferred comp program and an Vanguard Windsor 2 account. Both of these accounts let me withdraw the money when I am 59 years old but the problem is with my jobafter 25 years of service I will be retired at 46 years old. Is there anything I can invest in that will allow me to withdraw my money at that age?

Thanks in advance

[disneysteve]

Welcome. Is it your plan to retire fully at age 46 and never work again?

I'd say you have 2 main options. One would be to start maxing a Roth IRA each year, currently $5,000/year max, assuming you meet the income requirements. Contributions to a Roth (not earnings) can be withdrawn at any time. So if you put in $5,000/year for the next 17 years, that would give you at least $85,000 and really more than that because the contribution limit is linked to inflation and will rise over time.

The other option is a taxable investment account. You could buy stocks, bonds, mutual funds, ETFs or any other investment and at 46, you could start tapping those resources.

Being 45 myself, I can't imagine someone having enough saved at 46 to fully retire but if you can, that's fantastic.

[swanson719]

Early Distribution of IRA, 401K & Other Retirement Accounts - Penalty on Early Distributions

That should explain all your questions. 25 years gives you the minimum retirement. You should seriously consider your costs in early retirement - i.e. costs of living. Health insurance goes up dramatically with age and is a huge cost late in life. Traveling, hobbies, etc. You still have a good 40 years in you after retirement if you stop working at 46. Call it $1,500 a month minimum to have a comfortable living with no debt and not doing much extra for you and a spouse, you would need a minimum of $720,000 of todays money to retire. Figure inflation of 2% a year until you retire as a conservative estimate, and that turns your $720,000 into $964,800 as your magic number in order to live on a set budget of $1,500 a month. When you figure all your costs in, you cannot count on social security or medicare as being there. You never know for 40 years from now. We all would hope they are, but you have to make sure you take care of yourself just in case.

Seriously consider all of this because $1,500 a month is only $18,000 a year.

[Smashfactor18]

Swanson and Disney thanks for the advice I work for a Government Law enforcement agency and we are eligible to retire at 20 years of service with a pension of 50 percent of your highest pay year or 25 years of service with 75 percent of your highest year. I will also be able to cash out my sick leave and vacation leave I have never used for a lump sum. By that age I will be a dinosaur in my field and no doubt stressed out beyond my max. I want to make sure I can walk away and live comfortably once my 25 years are done.

I will continue to work but in a different field so that will supplement my income.

[jIM_Ohio]

Early retirement is possible with planning and saving. It is my #1 financial goal, and most decision I make on spending and saving have early retirement as a factor in the decision.

Early is relative to person retiring. I am planning to retire about age 53, which is a year after my twins start college.

Here are some comments:
1) spend less than you earn when working
2) save a significant percentage of your income- for me this is 20%
3) invest with mindset the money has 40 years+ to be invested (meaning I can subject myself to more risks for a potentially higher reward).

Hey guys I am looking for some advice. I am 29 years old and have been contributing to my employers deferred comp program and an Vanguard Windsor 2 account. Both of these accounts let me withdraw the money when I am 59 years old but the problem is with my jobafter 25 years of service I will be retired at 46 years old. Is there anything I can invest in that will allow me to withdraw my money at that age

Consider these issues
1) will the deferred compensation have enough in 25 years to live off of? In 25 years it might be a reduced benefit, make sure you know what the terms and conditions are.
2) If the plan provides X% of your salary, are you able to live (retire) on a fraction of what you were earning while working?

--those two issues do not even deal with ages 47-59, they just deal with is your retirement plan enough to retire on--

Assuming above gives positive answers, here is what you want to do for ages 47-59. You have 13 years of income and need to work 25 years to save for 13 years.
3) try to save a percentage of your income- 20% is a reasonable goal, but its OK to start smaller, and grow this over 3-4 years to a good percentage.
4) learn about building a diversified portfolio
two links on this board to read (post any questions to this thread):

http://www.savingadvice.com/forums/investing-banking/50669-questionaire-people-starting-retirement-planning.html

and

http://www.savingadvice.com/forums/investing-banking/50734-investment-risk-questionaire.html

5) here is a point to ponder- if you could save 33% of your (GROSS) pay and put it in a savings account, every 2 years you would save 66% of your salary, and in 26 years, you would have 13 years income set aside.
**What you want is clearly doable without taking significant risks, biggest risk is will you live long enough to spend the money you are saving LOL**

33% means if you gross 50k, you want to save about 16k per year- easierr said than done...

6) Learning how to invest the 16k is what you asked about, but its not that simple... because the Roth IRA steve suggested has rules about taking money out before age 59.5. It was good advice, but before you blindly open a Roth, you need to learn lots of issues about IRAs, withdrawing money, and taxes to make effective decisions for yourself.

If it were me, I would do the following
a) Put 5k per year into a Roth, but before you do this, READ up on the rules for taking money out, and do some calculations to see if this creates more problems for you than it solves
b) know your 33% number, subtract 5k, then put the rest of the money in a taxable account. I would put about 11% into cash and 22% into equity and bond based investments (This would be a portfolio which is 66% stocks/bonds and 33% cash).
c) get to know your tax form, and know how to invest b) so the tax form is not complex (muni bonds, tax efficient equity investments). The questionaire I linked to above will get you started on basic taxes- its not tough if you can handle numbers and limits and percentages.

[jefffou]

All very, very good advice.....

I would create my portfolios with the idea of reaching a certain level of assets. Tax considerations (especially at 50k gross income) should not be too much of a focus, except that they are efficient as possible at the level of risk needed to achive a desired result at the age of 46.

In other words, determine a rate of return needed to meet a goal of x number of dollars at retirement. Transfer as much risk as possible to meet that goal and finally, do it as tax-efficiently as possible. Don't strain out a gnat and swallow a camel here.

In fact, your unique situation just very well may dictate that a taxable brokerage account may work better for you than the retirement accounts. Pay tax on growth and earnings as you go, and hopefully sit with a nice chunk of already-taxed funds at retirement.

You're doing a great job, Smashfactor. Keep it up!

Jeff

[KTP]

Seriously consider all of this because $1,500 a month is only $18,000 a year.

720,000 kicks out more like $2400 a month at a 4% withdrawal rate (considered acceptable). This would be tax free even if not in a Roth because a couple earning $28,800 a year would pay 0 taxes after adjustements and deductions.

I ran the numbers on a 1.2 million setup with about half invested in municipal bonds and came up with about $50,000 a year tax free (the half not in municipal bonds would be ~$25,000 a year which for a married couple would be tax free with standard deductions. I think we could live off this until our 401K and the $1.75 left in the SS fund kicks in when we are 65. You have to remember that if you are saving 33% of gross now, then you really only need 66% of gross to live on, since you don't have to keep contributing if your nest egg is self sustaining (as a 4% withdrawal rate probably is). Actually since you pay no SS, medicare or federal taxes on the money after you retire, it would probably be quite a bit more than 66% of gross.

[Like2Plan]

I believe you are able to withdraw from your IRA penalty free prior to 59.5 if you take "substantially equal periodic payments."

Here is a link that goes into more detail:

Can I withdraw money from my IRA before age 59½ ?


IRS web site: Retirement Plans FAQs regarding Revenue Ruling 2002-62

"What is the exception in section 72(t)(2)(A)(iv)?

Section 72(t)(2)(A)(iv) provides, in part, that if distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancy) of the employee and beneficiary, the tax described in section 72(t)(1) will not be applicable. Pursuant to section 72(t)(5), in the case of distributions from an IRA, the IRA owner is substituted for the employee for purposes of applying this exception. Section 72(t)(4) provides that if the series of substantially equal periodic payments that is otherwise excepted from the 10-percent tax is subsequently modified (other than by reason of death or disability) within a 5-year period beginning on the date of the first payment, or, if later, age 59½, the exception to the 10-percent tax does not apply, and the taxpayer's tax for the year of modification shall be increased by an amount which, but for the exception, would have been imposed, plus interest for the deferral period."

[Like2Plan]

I work for a Government Law enforcement agency and we are eligible to retire at 20 years of service with a pension of 50 percent of your highest pay year or 25 years of service with 75 percent of your highest year. I will also be able to cash out my sick leave and vacation leave I have never used for a lump sum. I want to make sure I can walk away and live comfortably once my 25 years are done.

I will continue to work but in a different field so that will supplement my income .

If you receive 75% of your highest pay (and you receive COLAs), your pension will do a lot of the heavy lifting.

Let's assume you want to maintain the same level of income in your retirement. You do not have to replace the income you currently saving. (you aren't spending what you are saving).

For example, are you paying a percentage of income for your retirement? Union dues? Once you are retired, you won't have those deductions. On top of that you are currently contributing a percentage to savings. A 20-25% savings rate would go a long way towards meeting your goals. You may not need to tap into the savings when you retire at age 46...