Early retirement is not an easy task and requires a well developed financial plan. Before you start one with your professional investment advisor it would be helpful to gather the most recent statements for each of your retirement accounts, including workplace plans, annuities, and IRAs. Visualize the lifestyle you expect to have during retirement. Think about your likely annual living expenses. Keep in mind that the value of your savings will probably need to grow at a rate that exceeds the annual inflation rate even during retirement. Speak with your spouse or partner about the financial implications of your retirement plans.
Make a list of your likely sources of retirement income.The magic number for starting to receive retirement plan distributions without a 10% federal penalty (whether you continue to work or not) is 59 1/2, you can get full access to your money in a company plan such as a 401(k) if you retire as early as 55. The hitch is, you have to stop working for that employer entirely. If you plan to retire younger than that, you'll pay a penalty for spending the money early unless you follow a very specific set of rules for withdrawing it. Some company plans allow this, others don't.
If yours doesn't, you'll have to roll your money into an IRA first and then initiate the withdrawals. The Roth IRA allows tax-free and penalty-free withdrawals of your contributions before you hit 59 1/2, however, you have to wait five years to withdraw conversion contributions from traditional IRAs. Tax-free and penalty-free withdrawals of Roth IRA earnings are generally allowed after age 59 1/2.
Saving for retirement is about to get a whole lot simpler. Landmark legislation that Congress passed last year encourages employers to enrol workers in a 401(k) automatically, increase employee contributions automatically each year and automatically invest the money in the stock market, which offers the greatest potential for long-term growth.
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