Ask Terry Questions Rule of 55

Rule of 55

By Terry Savage on November 27, 2022 | Financial Planning / Retirement

Terry, my company was acquired my esop stock and my savings combined are enough for me to retire early. If the purchasing company changes 401k record holders after I retire will i be able to continue drawing money from the previous 401k account or do I need to wait for all accounts to transfer to the new record holder 401k then retire?

Terry Says

Wait, wait, wait! I think you have a lot of things confused! First, I’ve never heard of the “rule of 55”. Are you confusing that with a 72t distribution, which allows you to start taking non-penalty withdrawals from a retirement account at age 55, if you withdraw on a schedule to deplete the account over your lifetime? Read more and get a calculator for that here:
https://www.bankrate.com/retirement/72-t-distribution-calculator/

But I want to keep you from making a BIG mistake. Have you worked with a fee-only financial planner to calculate the impact of the costs of retirement and needs for income? I don’t know how old you are, or what you mean by “retire early” — but I hope you can hold off on taking Social Security until not only your full retirement age, but actually to age 70. Waiting will give you an 8% income boost for every year you wait, plus all the COLAs along the way — and will provide a higher base for COLAs in the future.

Again, without knowing your age and marital status, I don’t know what you’re planning for medical insurance and expenses — but you really do need to look into those costs. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

May I suggest that before making ANY retirement decisions you consult with a fee-only FIDUCIARY financial planner to discuss these issues and more. Find one you can trust by reading this link on my website.

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