What if you wanted to retire 10 years before you could collect on your 401K how would you do it besides selling assets? Also, is there a magic amount where you'd say F it and take the penalty for withdrawing early?

Of course this is all hypothetical, but if I stay on track I should be in the neighborhood of 5-7 million in my 401k and my wife will not be far behind. Of course, we agree it would be a much better life to retire early and enjoy life rather than wait. That then begs the question, how do we bridge the gap with other investments or do you say screw it and take the penalty?

subtle brag thread isn't really that subtle

I did this in investments and business, not GD for a reason.

If your 401k value is really that high, how have you not already diversified your investments into non-retirement vehicles. (Stock, bonds, real estate).

It isn't that high right now, that is the projection based on my current balance, 3% raise annually, my contributions, market conditions. That's why I made this thread because I genuinely don't know if that amount at retirement would be considered enough to not care, or if it is foolish to have that much. Seriously, it is a genuine question and I know there are some really smart minds here.

You can own stocks, bonds AND real-estate (in the form of REITS) in your 401K. I am guessing you don't have one.


We talk about that from time to time but with three kids in middle through high school there are just too many unknowns to put a number on it this far out for us.

No, mine is a target date through my employer.

Depending on where your 401 is you may do MUCH better making fund choices yourself than the target date funds. They tend to be VERY conservative.

Congrats for being so intelligent with your money. You need to plan. If you are serious hop over to bogleheads.com (it's the investing version of ar15). If you are already maxing your roth IRA, and traditional 401k (assuming you are trying to mitigate your tax liability) you should be investing in taxable as well. You can also withdraw you roth IRA contributions (not gains) tax free at any time.

I opened a self directed IRA to invest in businesses and real estate.

Brilliant. I greatly appreciate the investment site and IRA idea. Thank you for this input and the comments about being financially wise.

This is why in addition to maxing my 401k and roth ira out I also invest in a post tax account.  Besides, until 50 you're restricted to 18k a year in your 401k and 5500 a yr in a back door roth.  You want to save more per year if you can.

Life insurance. It is post tax money that can grow tax deferred. You can take "loans" from it so that the withdrawal is not taxable. You can get over loan protection riders etc.

Got to carefully watch the Mec limits of the chosen policy when over funding it for retirement income purposes.

Big life companies will have qualified individuals that can walk you through the structuring.

And yes you can get better performance elsewhere and yes there are other considerations but this is merely an additional bucket or vehicle for savings that is available that has tax deferred growth.

Also if you die the death benefit is not taxable in most situations.

Life insurance can be for the living if planned correctly.

Eta

Life insurance accounts aren't subject to rmd starting at 70 1/2. Tax strategy starting at 59.5 start rolling 401k money to life policy take tax hit younger and avoid having to withdraw 10 years later if not needed.

Yes, you rely on your non-tax deferred assets to bridge that gap. It would be really rare when the 10% penalty would be a good idea, but you would have to do the math at the time on your taxed assets.

Think very carefully about the idea of using insurance. The expenses related to whole or universal life, which is what was suggested, are high. You're paying for insurance, plus the expenses they charge you for the privilege of having access to the other benefits later.  Most calculators will tell you that you keep insurance and investments separate. Use term insurance for that need and invest your money separately. The savings you gain from doing term over whole life will pay considerably more in returns over time with average market performance.

Use savings/investments in non-qualified accounts.

Rentals.

Roth IRA contributions can be withdrawn tax and penalty free (though in your situation you may need to get creative to get around contribution limitations).

Roth conversions in early retirement can be withdrawn tax and penalty free 5 years after conversion, so using that plan you only need 5 years worth of "bridge funds".

Interesting.  I hope I have this problem someday...

I really don't think I'll have enough saved/invested before 60 at the earliest though.

For me, I started work young and plan to retire young. I invest some in retirement accounts but never really thought of it as "retirement" because it doesn't align with my plans. It's more of "I got fired or the economy collapsed and I need to stay above water" fund.

I've invested most of my money for retirement in rentals, land, and a few other things with family.

I'm not smart enough or highly paid enough to retire from savings. Residual income is where it's at. I need mailbox money coming in with minimal management required.

If you want to retire 10 years before retirement then plan for it. That certainly doesn't mean only have a 401k.

Stop, or at least slow down, buying shares and buy to own.

Own your own business. Own real estate. Own valuable collector art. To quote Gordon Gekko from the movie Wall Street, "I own."

I was smart with money young and because of the field I was in, after I left the military I was mid 20's making low six figures. I immediately started contributing to my company 401k. Also, my wife was in the same exact boat so we've been doing it together.

I really appreciate all the knowledge you all have provided. I was actually talking to my wife during our morning commute about some of the advise I received in this thread.

You may want to read up on the "72T" withdrawl rules.  It is set up particularly for your proposed situation
http://www.investopedia.com/terms/r/rule72t.asp

I would add that whole life insurance is almost never a good play when you look long term. Get term life insurance and invest the difference. Someone once said "insurance is for idiots who don't know how to do math". That statement is usually correct.

I really appreciate all the advise in this thread

See strategy 2 and strategy 3 in this link:
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

early-retirement.org/forums/    

Gotta love the internets

Sounds like you are on the right track but what kind of return are you expecting from a target date fund that is going to get you to 5-7 million with your wife close behind?  $10 million plus is a very big number for 401Ks.  

Spend some time on  bogelheads and you may find that your expected returns are a little too optimistic.

happens all the time...

Good Luck

If you really have 5-7 million you shouldn't be asking for financial advice on AR15.com

Also im surprised someone can get to that wealthy and not know how to bridge the gap between retirement age and when you can withdraw from a 401k without penalty (59.5) Did you fall ass backwards into money? Rich relatives put you in their will? You dont aquire that much wealth by accident.

FWIW My wife and I are planning to retire by age 50 and if everything goes as planned we should be millionaire or greater when we stop working. We will bridge that 10 year gap by living off of...
1) Cash in the bank which will come from the sale of Mutual funds and other non-retirement/age based stock market investments along with CDs and other sources of liquid funds.
2) By time you retire you should be completely debt free including your home and children should be long since grown and moved out of the house. My wife and I are only 30 but we've already paid off our home, both cars and our student loans.
3) We will probably work part time after we retire or do side businesses, I just cant fathom what I would do without a job or some purpose in life, especially if retiring as young as 50.

EDIT: I see you are just projecting 5-7 million, you don't actually have it.
If you dont mind me asking what is your career and age?

A lot of those retirement calculators are easy to get carried away with. And investment advisors often project or even promise unrealistic returns like 10%+ when historically the stock market has only done and average of 8%, and remember you need to take inflation out of that 8%, which on avg is around 3% but has been higher in recent years and often under reported by government statistics.

For my calculations I assume 8% growth annually and 3% loss due to inflation, so a 5% real growth rate.

Also your max contribution is $18k per person, so $36k per household and there are limits on tax-defered type investments if you make very high levels of income, i want to say $180k just off the top of my head.

Anything not in a 401k will have its gains taxed so you need to remove up to say 30% from that.

Im not trying to burst your bubble, i mean maybe you make a high level 6 fig salary so 5-7 mill is a piece of cake. FWIW my wife and I are engineers and we are saving very aggressivly with a maxed out 401k and we are only predicting around 2 million (Present value) combined savings at retirement.

EDIT 2: Im looking at a retirement calculator and even if you maxed out your 401k at $18k per year from age 25-65. so a 40 year career you would be around $3.5 million in present value. So im not sure how youre predicting 5-7 million in a 401k for one person, it doesn't even seem possible. You would have to save more than $18k and to do so you would have to invest outside of a 401k

Well.  I'm in the industry.   If what you are estimating is fact;   You are in the .0015% that will have that much in your 401k.   Or started when you were 2 years old.

Thank you for taking the time to write this up.
I may have been a bit unclear, but the idea is that we both (wife and I) would have about 5-7 million. We have been making the same amount of money and contributing the same amounts to our 401ks.
We're both 33 and have a combined income of about 230k.
I figured that number was high because like you mentioned it doesn't take into account the many things that will lower that value, but in the end that total number was for the two of us, not just mine. Sorry for the confusion.

I responded to the poster above, but all I did was take what I have now, what I'm contributing, what the numbers say based on a 3% raise and doubled it because my wife has about the same in hers and we make about the same. Sorry if that was misleading.

ETA: I just looked at my OP and I did in fact say 5-7 for me and my wife not far behind. Sorry, I completely messed that up.

It sounds like you have it under control. Just keep maxing out your 401k for now and as you get closer start setting aside cash and putting something into investments that you can access before 59.5  Say you wanted to retire at 50, so around 45 years old maybe you cut back on your 401k contributions and start stacking cash for retirement, it would only be 5 years off, which is considered fairly short and usually not something you would put money into stocks or long term, high risk investments and having a bunch of cash in the bank wouldnt loose much value due to inflation over just a couple year period. You can also keep it in CD or other short term low risk investments that will come close to keeping up with inflation.

This is a good time to look at things like:

1. Do you plan to retire in stay in your current house? If so, paying it off aggressively may make sense. If you plan to retire and move, save differently.

2. Are you developing any passive income? I, personally, am not. My wife, however, is.

3. What are your retirement goals? If you retire early, but want to stay in the Ritz on St. Thomas, you will need a lot of cash. If you plan to be a home-body, and shoot off your back porch and drink good scotch, you can get by with less.

Some of these things are hard to predict. I know people who travel on the cheap, and i know people who go ALL OUT. It is about what you want. I would personally be willing to work longer to travel in a bit more luxury, and continue to do things I want to do.

-shooter

From time to time max contributions will be increased.

Also at age 50, you are eligible for catch up contributions, currently at 6k.

I'm 57, maxing 401k, plus $1500 a month in after tax. Company contributes around $1k per month to a cash balance pension.

I'm going to try to get out at 60, but health care costs are a bitch.

I also forgot, my company matches 100% up to 6%. That applies to both me and the wife.

Yes always make sure you get the full company match, that is literally just free money.

Also, the match does not count toward your $18k max.

How many years do you have to max 401K contributions(plus catch up) on 2 accounts to get 5-7 million.
I have 5.5% match on my 401K contributions.
I've been maxing mine for several years and don't think I'll have 1 million by retirement.

I just plugged some numbers into a 401k calculator to see.

7% annual gains, maxed contributions plus 5% match on a 90k salary. No changes in salary or contribution limits were accounted for.

Starting age 20 retirement age 65... balance at retirement ~$8M

Only problem Is I didn't start till I was 40.

The same way you build up 5-7mil. Set aside a monthly amount that you will invest in blue chip dividend increasing stocks and let them drip.

If you still work at the same company you posted about a while ago, definitely make sure you account for the highly compensated employee contribution cap to your 401k in your planning. It's reasonably low for NOVA.

OP, talk to your financial manager regarding IRS rule 72-T.  I'm in the same position you are in.  

72-T allows you to draw-down from qualified assets without withdrawing early and eliminates the tax penalty.  I'm planning to do this when I retire at age 60, then throttle-back on my distributions once I'm eligible for full Social Security benefits at age 67.

It's all a gamble so you just have to stick your neck out and take the chance when it feels right.  I was run out of my career at 25 years so the chance may have been taken

for me.  I'm 51 and looking at a pretty lean 11 years until I could officially retire without penalty and draw SS with penalty.  The SS should pay for my health care and I just

have one lump of investments I really want to draw from prior to this.  


I'm a little short of comfortable but you can make it this simple by straight line calculating what you have over the years of early retirement for income and not count on any

gains.  Would that be enough for you to be happy?  You'll probably beat inflation with your investments so you will likely be able to draw more as time goes on.  I hear a lot

of people talking about increasing their pay 4% every year to keep up with inflation and calling that "4% Rule" safe.  


You might just want to have a little fun now and enjoy life a bit.  30-40 years is a long time ahead to predict.  You're making good money so if you are happy keep at it until

you know it's enough.

I like the way you think.  We do have fun. We've traveled the world, bought a travel trailer for camping excursions, and that bad boy in my avatar is free and clear. I just wonder about these things because my wife and I have surpassed both of our parent's knowledge in this department. Basically, flying blind.

Havent read everything, but a few points to ponder...

- Your retirement doesnt have to be exclusively in a 401k. You just need a big pot of nickels, where it sets is of little significance to your retirement. (Taxes and growth are an entirely different matter). What this means is it doesnt matter if you have 8 million in an 401k, 8 million in a bank account or 8 million under the mattress. If you have 8 when you retire, you have 8. (Again, taxes and such aside)

- 401k vehicles dont have any performance you cant reasonably mimic elsewhere. Which is to say a well managed stock trading account should be able to keep pace with the 401k. You can still invest in funds and such from a trading account

So given the above, you could pull back 1 or 2% in the 401k investment and channel that into a private brokerage account and simply invest in similar choices as you do with your 401k...ie....Dont buy single stock, buy mutual funds. This will give you roughly the same performance as your 401k, but in an investment which is always available to you.

Now theres a lot of little bits I've overlooked here, so consider this a high level plan. For example, 401k contributions are pretax whereas brokerage contributions are post tax. Gains in 401k are not taxed whereas gains in brokerage accounts are taxed (At some point). I mean there are quite a few small differences, but the idea here is you can have multiple vehicles all driving down the retirement road and performing similarly enough you wouldnt need to lose sleep over it. With the added benefit that a trading account is accessible to you whenever, which means you can retire early and use the trading account to bridge to your full retirement.

There was some solid advise in here. I appreciate it. I've had one mutual fund that I've been putting 100 bucks a month into since I was in the military. I totally forgot about it and looked at it the other day and was pleasantly surprised.

You are making so much money you both might be able to invest $20K a year after taxes in addition to the 18k pre tax.  The real question is where to invest after taxes?

Then there could be kids too.  Their College costs are as big an unknown as health care.  Right now, you can't be refused health insurance no matter how sick you are
but that can apparently be changed.  Cancer at 52 with no insurance would be a home wrecker.

So you build the biggest wad you can and take a chance when it looks right.  Many people keep working just for the health care until they can get Medicare.