OT: Rule of 55 (Retirement)

[formerlurker]

I'd like to retire around 55 (I'm 48 now). Or at least stop working significantly. Maybe have some kind of part time job... a bartender or whatever. I have recently heard of the rule of 55 where you can retire and withdraw on your retirement saving account without penalty. Has anyone utilized this rule? Pros/Cons... things I should consider?

I retired a few years ago at 53, health benefits are my biggest issue. $1400/month and going up every year.

 

[Waquoit]

Both of these statements might work for some people but are terrible advice for most others. Every year you defer taking SS income from age 62 to 70 your payout increases 8% per year. The actuarial facts support taking it later unless you have some chronic illness as most people will outlive their money. Btw sociaI security is up to 85% taxable income.
Most people will struggle financially in retirement. If you want to retire early check on what your insurance costs will be from age 50 to 65 - likely $27-$30k for most couples.

I doubt most. And if you don't take it early, how do you make up for that money? Go without? Get a job? Take money out of your 401K? Take the money.

 

[HuskyHawk]

I doubt most. And if you don't take it early, how do you make up for that money? Go without? Get a job? Take money out of your 401K? Take the money.

It’s all a very individual decision. I was a bit surprised when we finally met with our Fidelity advisor. Told him our plans and he essentially said we’d likely have more money when we died than at the beginning of retirement. Not sure I believe that but it did provide some comfort. Right now I do plan to take SS before 67. But probably closer to 65. Figure I can use that zero income period to cash out some capital gains and reduce the tax hit.

 

[Peacefrog]

I doubt most. And if you don't take it early, how do you make up for that money? Go without? Get a job? Take money out of your 401K? Take the money.

The prevailing wisdom seems to be to delay taking it as long as you can if you have the ability to do so. The guaranteed raises are very attractive. If you take it early you are locking yourself into a reduced payout of almost 50% compared to waiting until 70. That's huge. Of course there are any number of scenarios where it might be preferred, if not necessary, to start taking it earlier. The big unknown for all of us is how long we will live.

Given my current health and family history, I am assuming that I will get to at least 90 which makes waiting until 70 the obvious choice. I might end up working to that age or beyond. I love my current job and company and there is only so much golfing and fishing I'll want to do so I think I'll keep working at least half-time. If I stopped working sooner than 70 I would tap investment accounts in the interim and use those low/no taxable income years as an opportunity to convert traditional 401K/IRA funds to Roth.

 

[Drumguy]

I doubt most. And if you don't take it early, how do you make up for that money? Go without? Get a job? Take money out of your 401K? Take the money.

I try to avoid these thread pissing matches but there is a lot of good information in the thread and bad information as well, but what the heck.

I’m a CPA and own a medium size accounting firm and work with many financial advisors. When I reference actuarial statistics, it’s fact based as opposed to your feelings one way or the other. Most people who retire early will likely end up having to take a low paying job to avoid the SS repayment issues and get health insurance. They will not have enough money to pay for all their expenses for the rest of their life and the rest of us will have to pay taxes to cover Medicaid nursing home costs for them.

 

[Lafayette]

I try to avoid these thread pissing matches but there is a lot of good information in the thread and bad information as well, but what the heck.

I’m a CPA and own a medium size accounting firm and work with many financial advisors. When I reference actuarial statistics, it’s fact based as opposed to your feelings one way or the other. Most people who retire early will likely end up having to take a low paying job to avoid the SS repayment issues and get health insurance. They will not have enough money to pay for all their expenses for the rest of their life and the rest of us will have to pay taxes to cover Medicaid nursing home costs for them.

I am an Enrolled Agent and concur with this.

I think people should try to budget for what they want to do in retirement. Then it's a question of how to fund that - IRA RMDs, SS. Since SS comes with Med A+B if you have concerns over health you can take that early so you are covered by it.

IRAs won't but taking them at 67 is the current thinking and then consider the state you live in - ~43 don't tax SS, ~13 states don't tax IRA RMDs.

Also consider your home if you are downsizing as well as savings accounts or potentially you have Roth IRAs that at 59 1/2 become ATMs.

 

[dog bone]

The break even point for taking SS early vs waiting is the age of 77-78 years. If you expect to live longer, you are best to defer taking SS early and waiting if you can as you will be getting more money from the system the longer you live beyond 77-78 years old.

That said, my wife and I plan on taking it at 62 as we both have some health issues. Also, not sure what SS is gonna look like 5-10 years from now, so we wanna grab it early while its still there. For the same reason, I took a lump sum pension payment from my work instead of annuity as I had some doubts the annuity would be guaranteed for the rest of my life. There are stories of lifetime pension annuities running out.

We work with a financial advisor and they did suggest deferring SS and keeping my pension annuity, but we just don't feel comfortable doing so. Given that, the financial advisor did put together a strategy and our money in retirement funds should outlast us, even if we live into our 90s.

 

[Excalibur]

The break even point for taking SS early vs waiting is the age of 77-78 years. If you expect to live longer, you are best to defer taking SS early and waiting if you can as you will be getting more money from the system the longer you live beyond 77-78 years old.

That said, my wife and I plan on taking it at 62 as we both have some health issues. Also, not sure what SS is gonna look like 5-10 years from now, so we wanna grab it early while its still there. For the same reason, I took a lump sum pension payment from my work instead of annuity as I had some doubts the annuity would be guaranteed for the rest of my life. There are stories of lifetime pension annuities running out.

We work with a financial advisor and they did suggest deferring SS and keeping my pension annuity, but we just don't feel comfortable doing so. Given that, the financial advisor did put together a strategy and our money in retirement funds should outlast us, even if we live into our 90s.

I’m surprised that your advisor encouraged you to take the annuity. It’s almost a default position that everybody hates them at this point, except the people selling annuities. Annuity payments tends to be higher when rates are higher, and lump sums make more sense when rates are lower. That said, pension annuities, for now, are guaranteed by the PBGC. I think the risk of it running out is near zero, or at least no greater than getting wiped out if you invest the money.

I will probably annuitize a small (15% or so) portion of my savings once I retire for the sake of having at least some guaranteed income, though I acknowledge that is not the economically ideal decision.

 

[Beak7774]

My advice to the board is to use the posts as concepts or ideas that you could use to plan for retirement as every single person/family has unique financial resources and requirements/desires. Please go to a financial planner and have them evaluate your situation to help you make your decisions about the future.

A fiduciary, fee based advisor in particular.

 

[BlueandOG]

As someone who is 5-10 years from retirement, I spend way more time than I should contemplating what type.of injury I'd be willing to accept to go on SSDI and live off that along with pension from the military.

How long did you serve? What branch? I have 10 years in the Army and ARNG.

 

[AZHuskiePop]

I am an Enrolled Agent and concur with this.

I think people should try to budget for what they want to do in retirement. Then it's a question of how to fund that - IRA RMDs, SS. Since SS comes with Med A+B if you have concerns over health you can take that early so you are covered by it.

IRAs won't but taking them at 67 is the current thinking and then consider the state you live in - ~43 don't tax SS, ~13 states don't tax IRA RMDs.

Also consider your home if you are downsizing as well as savings accounts or potentially you have Roth IRAs that at 59 1/2 become ATMs.

SS part A&B has a 20% deductible and doesn’t cover many things . The coverage for Medicare is 65. Unless you qualify for a disability.
So if you take that option which is the most portable you’re pretty much forced to buy private supplemental insurance or Medi- Gap which isn’t cheap.
As far as IRA at age 70 you have to take Mandatory Annual Distribution..
For young people that IRA is a lifestyle changer in retirement . If you’re not taking advantage of even the minimum match you hurting yourself . Retirement seems a long way away but it goes fast . I’ve had 17 years of retirement without any significant financial hatdships because of that planning
Anyone retiring early who doesn’t have good portable health insurance is gambling .Last year medical was my biggest single expense..
Moving to a lower tax state is an option
Property taxes alone plus lower utility costs are a help. But Real Estate in former low cost areas is no longer the bargain it was when Ii retired.

 

[husky8273]

As far as IRA at age 70 you have to take Mandatory Annual Distribution..

changed to age 73

 

[Chin Diesel]

How long did you serve? What branch? I have 10 years in the Army and ARNG.

Did just a bit over 20 years in the Navy and have been retired for 11 years now. Work full time and that pays the bills and sets me up for real retirement. Mikitary retirement paycheck is for fun.

 

[uconnfan68]

How long did you serve? What branch? I have 10 years in the Army and ARNG.

You get nothing for less than 20, unless things have drastically changed. I got the GI bill for my 9 years.

 

[Chin Diesel]

You get nothing for less than 20, unless things have drastically changed. I got the GI bill for my 9 years.

Things have drastically changed. Kids are now in a Blended Retirement System (BRS). It's a lower pension but kids get Thrift Savings Plan with a match and if they leave with less than 20 they take the money with them.

Plenty of variables but you can google military blended retirement system to learn up on it.