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I invested in my 401k since my first year graduating college. But I cashed much of it out to buy income generating cash flow rental properties. I figured it would be a good move after the real estate bubble crashed. I guess it could have been considered risky but all those properties are paid off now and generating cash flow each and every month.
I wouldn't consider myself totally retired. But I could pass for "semi-retired" and could retire if I wanted to. I'm much younger than 55.
Congrats. Did you have to pay the 10% early withdrawal penalty or did you start your "business" with it? I believe you don't have to pay the penalty if you do the latter.
I've maxed it out each year since at least 2008 for whatever limit the IRS allows. Before that year, we could only contribute a certain % of salary. I'm not sure what that max was, but knowing me, I would've done my best to meet it. Since I work for the fed, we get a decent match, and our 401k, called the TSP, is one of the best around. I started my career kind of late-ish, but the good thing is that DW is also a fed, and also maxing out her TSP. I am prior military, and I bought back that time when I entered the government, so I can retire at 55 if I want. I think I could do so without too much difficulty, but right now my plans are to stay in until I'm 60. Then I read some of the sky is falling posters here, like mathjak, where it seems like retirement will be dicey no matter how much you save, and I start to wonder whether early retirement will ever be possible...
retirement is always dicey as to the outcome if you do not have a pensionized income .. otherwise your income is based on many variables. anytime you deal with how long will i live , what will markets be like and what will inflation be like and what will my expenses look like you need a cushion because no one really knows how you will hold up..
but thankfully there has been enough research done on just what were the conditions that we had that could have hurt us so far.
the only question is what do you want to do about protecting against those conditions and what success rate historically is acceptable to you.
if you want to be buffered 100% from every bad scenerio we had so far and don't want to ever risk taking a cut in income well then you may need a few million and a high equity allocation.
do you want to only pass 95% of the worst case scenerios ? well you need less.
want to meet 80% of those scenerios , well you need less still.
there is no exact amount you need to retire. the amount is going to depend on what you want to draw, what allocation to equities you want to make and how high of a success rate do you want.
the range of money needed from the min to the max is alot.
do not be scared off because you don't have millions saved. you just have to adjust accordingly. you are young so at this point you have no clue what your retirement needs will be.
just save as much as you can , grow it as much as you can and a few years before you can evaluate your retirement needs.
Last edited by mathjak107; 02-23-2013 at 12:55 PM..
Congrats. Did you have to pay the 10% early withdrawal penalty or did you start your "business" with it? I believe you don't have to pay the penalty if you do the latter.
It worked out for me but it will NOT for a lot of people. I don't even recommend it for the majority of people out there in most situations.
It's best to talk to a financial planner/accountant that specializes in this before doing something like this. It's not for the faint of heart.
I left my old firm where I was a Partner to go start up my own company. So I rolled over my 401K into a self-directed IRA. It's VERY important that you do this correctly. There are a lot of strategies and it can be a bit complex for the typical person.
But once you properly roll it over there are a LOT of possibilities. You can invest in real estate, private businesses (I started up a few private businesses), private loans to those that you may trust. Heck, even gold or silver bullion.
Self-directed IRAs or Self-Directed IRA LLC's can be very powerful. Again, I recommend speaking to a professional before doing something like this. But for a lot of general information, just Google "Self Directed IRA's" "self directed IRA LLC" or "401k Rollover to Self Directed IRA".
It's all allowed by the IRS. The vast majority of people will never do anything like this but it's all legal. There are no early withdrawal penalties or taxes to pay if you structure it properly. But much depends how you structure it so talk to a professional before doing it.
I spent over 1.5 years making a business plan before doing this. It ended up working out great for me and essentially enabled me to semi retire. But it was a LOT of hard work and risk. But it paid off. Most entrepreneurs don't understand that this option is out there.
There are a lot of chains of thought of doing something like this both pros and cons. Some entrepreneurs that I speak to, don't want to risk ANY of their own money. To me that doesn't make sense. When I was starting my company, I knew I could make it a success. I believed in it and spent a lot of time putting together a business plan. So to me, it didn't make sense using ANY outside investors or get loans. I did NOT want to give up ANY equity in my company. I wanted to own 100% of it.
Most entrepreneurs don't think that way. They go to their family and friends to seek investment or will turn to angel investors. My philosophy is if I am going to start a business and I think it's going to be a success. I want to own the entire company. That was the best decision I ever made and it wouldn't have been possible without structuring it the way I did.
Fortunately I had my 401K that I invested in for many years and that was doing well. The returns I made from that choice to roll it over into a self-directed IRA was FAR more than I ever could have made keeping it in my 401K.
Last edited by earlyretirement; 02-23-2013 at 04:27 PM..
Maxing out on the 401-K isn't nearly enough on its own to retire that young. You need a lot of extra savings, unless you have a generous pension.
EXACTLY!! Also, just because you "max out" doesn't mean anything. Simply contributing isn't the "getting rich" part. It's the returns you make on whatever is in your 401K. Contributing is only half the battle. The other half is making solid returns each year.
I know people that max out in their 401K but don't have much to show for it because they didn't diversify enough. Some people get company matches for investing in their own company stock and just invest in their own company. There are laws now I believe that protect against this but look at some of the old Enron employees that were maxing out their 401Ks. Some of them got wiped out when their company went under.
And when they started, it could take up to 15 years BEFORE employer's match would vest. Fortunately, that has changed.
Still though, for a great number of American workers, the 401k is yet another racket, the retirement snake oil. The absurdly high fees in many of these plans decimate their potential. The national average expense ratio is over 1%. This amounts to $100,000s of potential lost earnings over one's career. And the 17.5k limit is unfairly low, given that there are 401k variants for business owners which permit them to sock away incredibly large tax deferred amounts.
There are people who do it, but I don't see them living the kind of life I prefer.
Nothing wrong with that...as long as you don't complain about it later. A lot of people also lose good paying jobs in their 50s, so this focus on "lifestyle now" comes with risks that people usually don't acknowledge.
I know one person whose motto was "live for today" and didn't have significant retirement savings and lost a good paying job at age 49. He went through 5 years of sporadic employment and ended up declaring bankruptcy. He has a decent paying job now but basically has 0 in assets and still says he can't save anything (same pattern as always).
He blames most of his financial problems on outside forces instead of on his lack of planning...and that's what p*sses me off more than anything...but I think this is the typical attitude of non-planners.
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