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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Hello, and welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon dotcom or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional. Which means, when it comes to financial topics, we can pretty much discuss it all, whatever's on your mind.
Mike:Now that said, please remember this is just a show. Everything you hear should be considered informational, as in not specific advice. This is not financial advice. If you want personal financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen.
Mike:David, thanks for joining us today.
David:Hello. Thank you.
Mike:Now for all those listening, David's gonna be reading your questions. That's right. Your questions. And I'm gonna do my best to answer them. You can send your questions in by either texting them to 913-363-1234.
Mike:That number again, 913-363-1234, or email them to hey mike@howtoreontime.com. Let's begin.
David:Hey, Mike. I am 45 years old and recently decided that I'm done with work, and I wanna retire at 50. Most of my assets are in my 401 k, though. What can I do?
Mike:I really appreciate this question. When people ask this question, it's typically not coming from a place of I have no money, but I wanna retire in 5 years. It's typically I've I've worked my butt off saving, and I'm just tapping out. When you retire before the age of 59a half, it gets more technical though. And so if you're listening, if you're 20 or 30 years old, you're going, I'm I'm out by 45, I'm out by 50 years old, make sure that you have a very deliberate conversation with a very deliberate lifestyle plan because if you're putting everything into your 401 k, which this person did, it's very tricky.
Mike:Yeah. Yeah. Times are most precious asset, our most precious commodity. And for the people that can afford to retire at 45, 50 years old, you just you've got more time. But it's important to understand, with more time, you're taking on more risk because you're living a longer life, and you've got to live off your assets for a longer period of time.
Mike:So there's some there's some delicacy with this this question. Okay. So 45 years old, 50 years old, they wanna retire. That means they've got 5 years of potential preparation. Everything's in a 4 one k.
Mike:That's tricky. First thing is create the plan and understand how much income you want. What is your lifestyle intended to look like? Because if you take income out of your 4 one k or traditional IRA before 59 a half, there's a 10% penalty. That's a problem.
Mike:Yes. But, if you can start aggressively saving elsewhere, then maybe you can bridge the gap. Let's take this in 5 year chunks. Okay? A lot of people don't know know about these these not loopholes.
Mike:It's just it's the tax law. Yeah. Tax laws aren't loopholes. It's just a bunch of strategies. And do you know the strategies, or do you not know the strategies?
Mike:So from 50 to 55 years old, this person would need to be able to generate income from nonqualified accounts. That bridges the gap. There's a few other things we could do in here. I'll talk about those later, but that's the first gap. The second gap is is gonna be at age 55.
Mike:If it's done right, and there's there'd be have to be a trick here. So 50 they have to keep their assets in a 401 k during this time period. Don't roll it over to an IRA. Then they would need to roll their old 401 k, assuming they can keep it for this long, get a new job at 54 years old, and then retire. So roll the assets in the 401 k, retire at 55, and then keep your assets in the 401 k.
Mike:You can then potentially, assuming they didn't change any laws and there's a lot of nuance here, you could work around and within something called the rule of 55. The rule of 55 says that you can take income out of your 401k, not your IRA, your 401k without the 10% penalty.
David:K. Who who made this rule of 55?
Mike:Congress.
David:Oh, okay.
Mike:That's where all the rules come from.
David:Yeah. Congress.
Mike:But now you can see, okay, you can keep enough of your asset in your 4 one k, keeping it in low risk accounts, like, maybe bond funds, maybe, money market accounts in your 4 one k, and leave enough in there that you could take income out from 55 to then 59a half. And then once 59a half hits, then you can tap into your traditional IRA and the other assets and have more flexibility. But you can do this. It is possible to do this. It's extremely technical from a tax standpoint.
Mike:Also, I wanna talk about 70 2 t and 72 q. Okay? These are ways you can take income out of retirement accounts, and that includes annuities being defined as retirement accounts, before 59a half. What it says though is that basically you can take out a certain amount based on the riskless rate for around 10 years or so. It depends on how you structure it.
Mike:And it has to be the same over a certain period of time, and you can start taking funds out without a without the penalty. But you have to structure it right. It's it's very technical. 72t or 72q, 72t, 72q. Those are the rules there.
Mike:1 is specifically for any pretax account, like an IRA. The other one is specifically for annuities because annuities, you can't take any money out before 59a half either. A lot of people don't know that. So what I'm getting at is this there's a lot of rules here. Is it possible?
Mike:Yes. Should you do this? That depends. You've got to have purpose, a reason to get up in the morning. Don't retire just because you hate your job.
Mike:If you hate your job and you can afford to live off your own and we can bridge some of the gaps here, great. Now go find another job whether it's volunteering or it's a really fun job that doesn't pay very well, whatever it is, but you've got to have a reason to get up in the morning. You've got to have someone depending on you to do something. You've got to have the ability to connect with other humans. If you don't, and this is a very common story, I retired early, all my friends kept working, I got bored so I went back to work.
Mike:Anticipate that that may happen to you. Be aware that that's a possibility. Structure your lifestyle plan, not just financially, but also what's going to give you purpose? What's gonna give you happiness? Those are all very very important parts of your plan.
Mike:Because just because you can afford it, doesn't mean you should proceed with it.
David:Yeah. I
Mike:just my mind went to just because I could buy it doesn't mean I need to buy something. Yeah. Right? I drive really boring cars. Just because I could buy a nice car doesn't mean I have to buy a nice car.
Mike:Now, some people like nice cars. Nothing wrong with that. Yeah. But just because you can do it doesn't mean you should do it. Be very deliberate about that side of it because retirement once people retire, I have seen that their cognitive faculties decline.
Mike:Their physical faculties decline at a faster rate because they've got less responsibility. They've got less on the line. There there's less purpose in in many situations. So be careful of that. Also, if you're gonna do this, be very very careful how you structure your reservoir.
Mike:So the reservoir for those who are unfamiliar or have not read the book, how to retire on time, which I'm gonna give a shameless plug. Go buy it on Amazon today. It's been a Amazon bestseller twice. Yeah. That's been fun.
Mike:Portfolio risk management is the the category specifically. But your reservoir is nothing more than a part of your portfolio that is principal protected. It cannot lose money. If you're retiring early on, you've really got 3 options, maybe 4. I mean, you've got high yield savings or money markets.
Mike:Doesn't have a ton of growth, but has some growth right now. You've got CDs. You've got treasuries or bonds. And you have cash value life insurance. Now you'd only buy cash value life insurance if you also wanted the death benefit.
Mike:Life insurance doesn't really make sense if you don't want the death benefit because why would you pay for something you don't need. Right? Yep. You can't do annuities off the table. Uh-huh.
Mike:Because how are you gonna pull it out without that penalty? I mean, it just that's an inefficiency. So those who wanna retire before the age of 59 and a half, it's a much more technical conversation, but it's possible, happens often for those that that have a life they can step into that gives them purpose, that gives them satisfaction, that gives them fulfillment. And if that's you, great. And if that's not you, that's okay too.
Mike:We're all on different journeys, living different lives, having a great hopefully having a great time. Yeah. Life's meant to be enjoyed.
David:It is.
Mike:It's it's tough at times, but, hey, the bitterness makes the sweet that much sweeter.
David:Absolutely.
Mike:Right? So if you're wanting to retire early, or just want to retire at all hey whatever that whatever on time means to you and you want help coordinating these different tax laws and strategies and all the nuance that we've been discussing really at a high level here because it gets much more complicated than this Just text analysis to 913-363-1234. That's keyword analysis to 913-363-1234. When you text there, you're gonna get a link. It's gonna go to a page that gives you some more information.
Mike:This analysis doesn't cost you anything, but it gives you more insight, more clarity as to the options that are available. We want to explore your lifestyle and legacy potential together so that you can make the best decision for you. In fact, many people have said that this analysis actually offers them more clarity than their actual current financial plan. That's a badge of honor that I will win.
David:Absolutely. Great compliment.
Mike:It's because it's a comprehensive analysis not some, well, if you buy this annuity you can get this income. That's not an analysis. That's a product sales pitch.
David:Right.
Mike:An analysis is looking at your income strategies, your growth strategies, your tax strategies, your health care strategies. I mean, just go down the list. It's massive. Text keyword analysis right now to 913-363-1234, or go to your wealth analysis.com for more information. This is all about how to retire on time, on time, whatever you define is on time.
Mike:That's that's the target here. That's what we wanna help you accomplish. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time.
Mike:Discover if your portfolio is built to weather flat market cycles cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you, regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.