Retiring Early

So, one of my goals is to retire early - say, when I reach the age of 50. Given that this is my goal, does it really make sense to invest in a 401(k) if I can't take that money out until I'm 59 years old? Am I missing something?

Originally Posted by odoreater

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So, one of my goals is to retire early - say, when I reach the age of 50. Given that this is my goal, does it really make sense to invest in a 401(k) if I can't take that money out until I'm 59 years old? Am I missing something?

Well, do you plan to die before you are 59? Or will there be life after 59 where you can enjoy that money that was tax deducted, grew tax deferred, and stays that way until you withdraw it?

Originally Posted by odoreater

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So, one of my goals is to retire early - say, when I reach the age of 50. Given that this is my goal, does it really make sense to invest in a 401(k) if I can't take that money out until I'm 59 years old? Am I missing something?


Well...since the limitations on 401(k) contributions means that there's no way you can retire at 50 exclusively on those contributions, you'll need both pre-tax (401k) and after tax savings to meet this goal. It would only make no sense to use the 401k if you plan on dying at age 58. Otherwise some portion of your savings will be needed for the portion of you life after you turn 59.

EDIT: Dang it. Pio beat me to the post.

If you're trying to retire at 50 you'll need to invest in more then just a 401(k) plan. It also depends quite a bit on your age now. The secret to investing is the compounding of the interest.

Ok, I understand what you guys are saying. Right now I contribute 3% of my income to 401(k) and the rest of my savings goes to after tax investments (mostly ETFs). But, I'm just wondering if I can't do more with that 3% that's going to the 401(k) if I just put it in with the rest of my after tax investments and use that money before I turn 59 as capital for other investments (real estate, small business, whatever).

I guess I'm just afraid of tying up a bunch of money that I can't tap into until I turn 59. On the other hand, I guess it might be prudent to have some money tucked away that can't be touched in case my other investments go sour.

Originally Posted by satorstyle

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If you're trying to retire at 50 you'll need to invest in more then just a 401(k) plan. It also depends quite a bit on your age now. The secret to investing is the compounding of the interest.

I'm 27 and my wife is 25 so we still have a long way to go.

Originally Posted by odoreater

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Ok, I understand what you guys are saying. Right now I contribute 3% of my income to 401(k) and the rest of my savings goes to after tax investments (mostly ETFs). But, I'm just wondering if I can't do more with that 3% that's going to the 401(k) if I just put it in with the rest of my after tax investments and use that money before I turn 59 as capital for other investments (real estate, small business, whatever).

I guess I'm just afraid of tying up a bunch of money that I can't tap into until I turn 59. On the other hand, I guess it might be prudent to have some money tucked away that can't be touched in case my other investments go sour.

I would max your 401k then max your Roth, then look for other investment routes. Wanting to retire at 50 is admirable and a good goal, but figure it might be a "soft" target, once you start paying tuition for your kid(s), etc. Max these things as you want the tax advantage and you will pass the point of where you can even use a Roth soon, if you haven't already, which is nicely timed to match the point where your IRA is no longer tax deductible, only tax deferred.

Also, there is retirement as in, "I am never earning another cent" and retirement as in, "I have my nest egg feathered, most things paid for, time to just work enough to get by." That's probably the best goal for 50. I know it's mine.

Oh, if you open say, a Fidelity brokerage accunt with your IRA/Roth, you can buy ETFs, even individual stocks.

Well, goals and assumptions are tricky things. The only people I've heard trying to advise me that 401k's were a bad deal were people who were trying to make money off managing that money instead of me putting it in that plan...so I discounted their advice accordingly.

Nearly all independent advisors I've seen will say that for most people the 401(k), prudently invested ought to be the core of your investment strategy. Basically there's no way that you should be putting anything less than the amount necessary to get the biggest match from your employer (that's free money after all). Most employers these days match up to the 1st 5% of your income (or something like that). If you're employer has one of those plans and you don't fully get that money...

Beyond that I'd say you should be directing everything you can to your 401(k) first, then putting whatever's left into after-tax investments.

If you're young you can afford to be more aggressive in your investments, both inside and outside your tax deferred plans (assuming you're comfortable with risk), since you've got more time to recover if things go badly.

I should point out that my employer does not contribute to my 401(k) at all. And also, my wife and I combined make more than the phase out range for Roth IRAs.

How old are you? I've seen this happen: Get a government job when you are 18. Retire when you are 38. Get another government job. Retire when you are 58. Get a consulting job. Never retire, but under-bid your competition based on you retirement subsidy until you die, or you _actually_ retire. Fat City!

Originally Posted by odoreater

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I should point out that my employer does not contribute to my 401(k) at all. And also, my wife and I combined make more than the phase out range for Roth IRAs.

Then max your 401(k)s, 15.5k each this year I think. Then max your IRAs, even though it's not tax deductible. Then save after that and use vehicles that do not trigger a lot of taxes.

Oh yeah, and to help the early retirement thing, think of paying off your house in 15 years or sooner.

Originally Posted by odoreater

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On the other hand, I guess it might be prudent to have some money tucked away that can't be touched in case my other investments go sour.

this is smart - you never know what the **** can happen to change your plans.

Why not just keep playing the lottery until you hit it big? Sounds alot simpler than all this retirement savings plans mumbo jumbo.

just a tip. retirement is boring boring boring.

Max out the 401(k). Also, do all your shopping at WalMart and Costco and take no vacations and buy no nice things. You'll be able to retire at 50, but do you really want to live your life that way to get there?