Retiring early is one of the most common goals I see from our generation. It’s an awesome idea to want to be work optional at an early age, but it also requires a lot of planning to make happen.
When you retire young you won’t have social security for awhile plus you won’t be taking RMD’s from your 401(K)/IRA. This leads many to choose against using retirement accounts for themselves, but that is not the right choice. These early retirees get so focused on how to live from 50-60 that they forget they also have to live from 60-90 or whenever their time here ends. Focusing on 10-15 years only vs the entire 40-50 year retirement is not good planning. You do not want to be that narrowly focused.
It is important to map out this time from 50-60 and how you will live, you just don’t want to only think about that timeframe. For many of my clients who have this goal, we build out savings through a taxable brokerage account. Why? Because this is the account where you can put as much money in as you want, use it when you want, etc. so it is the best for those early retirement years. Many avoid using a Roth IRA because “you can’t touch it until you are 59.5.” However, people forget that you can pull out your ROTH IRA contributions at anytime penalty free. This means you already have 2 buckets here that you can use for early retirement. However, I will admit that I would much rather let my ROTH IRA compound tax free for as long as possible, but it is good to know it is an option here when needed.
If you choose to just use a taxable brokerage account, you are missing out on the tax savings that can be created from optimizing tax brackets. There are times where you will want to use pre-tax and post-tax investment accounts, especially knowing that you will need to live from 60 till the day you pass away.
In my mind, the perfect retirement plan maps out the years pre 60 you want to retire, has taxable dollars for that (plus some extra for later), and also utilizes ROTH IRA’s, 401(K)’s, HSA’s, etc. for the later years. You need savings and investments for these different age brackets.
Do not let yourself get so focused on early retirement that you forget about the other 30+ years and how to best fund it.
This has been on my mind a lot recently as I see so many people on Twitter talk about only using taxable accounts since they are going to retire early.
Thanks for listening to my rant! I hope this helps you understand why using retirement accounts can still make a lot of sense for early retirees. Think of your entire retirement, not just the early years.