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I had never heard that before, most everything I read says this...
Once you reach 59 1/2 years old, you have a couple of options. You can cash out entirely and pay ordinary tax on the investment income, or you can avoid paying taxes by rolling the 401(k) distribution into another retirement account like an IRA. At some point, you will pay taxes to withdraw that money, but you won't right away. If you try to take money out of your 401(k) before you turn 59 1/2, the funds are taxed as regular income -- plus, you'll get hit with a 10 percent early withdrawal penalty.
What Is the Rule of 55? The IRS Rule of 55 allows an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 1/2 to pull money out of his 401(k) or 403(b) plan without penalty. This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.
Of course, there is a slight catch you need to be aware of. The Rule of 55 only applies to assets in your current 401(k) or 403(b)—the one you invested in while you were at the job you are considering leaving at age 55 or older. If you have money in a former 401(k) or 403(b), it's not eligible for the early withdrawal penalty exemption. You would have to wait until age 59 1/2 to begin withdrawing funds from those accounts if you wanted to do so without paying the 10-percent penalty. One strategy to give yourself access to retirement plan assets with a former employer prior to age 59 1/2 is to roll those assets into your current 401k prior to retiring from your current job.
This strategy will give you access to those funds penalty-free if you do not want to wait until 59 1/2 to begin taking money out of the plan.
It is important to note that the Rule of 55 does not apply to individual retirement accounts. If you were to move assets into a rollover IRA upon leaving your job, you would not be eligible for early withdrawal under the Rule of 55.
I know what you mean. Seeing the poll numbers and reading the responses has made me realize that in retirement-finance terms I am not only living on a different planet but probably in an entirely different universe than most people who post here.
It makes me wonder if the gap in how people on this forum view many other things about retirement, versus the general population, is likewise much wider than I've been assuming. Because based on what I'm reading here, my financial situation is probably considered to be dirt-poor by comparison.
This forum is mostly affluent people. Sure, there are exceptions, but they are generally upper middle class and beyond.
I posted about my mother, who is 61 and bailing out before she turns 62, immediately taking SS, etc., a few weeks ago. My parents have low six figures ($100k-$150k) in all retirement savings plans. They have a bit of home equity (probably $60k-$80k), a bit of pension income from various places they've worked, and SS. They still have a mortgage and a car payment. Dad has hinted around that they want to buy my aunt's half out of my grandmother's house when my grandmother dies to get into a more affordable living situation. It's going to be tight.
This is going to be a very common situation in the population-at-large, but there are relatively few people in that situation on this forum. I have a small town/rural perspective from flyover country. I know a lot of folks in their late 50s/early 60s in real life. Most seem to be closer to my parents' situation than the situation the majority of the folks on this board are in.
There is also a coastal bias that I've noticed. I can't tell you how many threads I've seen from people who've lived and worked in affluent coastal areas who have or are planning to bail out to places like where I'm at.
Someone who had been posting on here fairly frequently began talking to me about moving to my local area from a more affluent coastal state years ago. I got to know the guy fairly well over time. He seemed to have an average job and was extremely cost-conscious, which was one of the reasons he was considering Tennessee at all. Being interested, I dug through some of his posts and he had posted somewhere he had about $800k in his 401k. With his home equity, he's a millionaire. That's not "rich," but it's a hell of a lot wealthier than most people around here will ever be able to achieve.
When you've lived and worked in a low cost area like I'm in your whole life, you probably don't have the equity to bail out somewhere else. There might not be many cheaper places. That house a couple in metro Boston bought several decades ago for $150k might be sitting at $700k now. Here, the house you bought a couple decades ago probably appreciated around the rate of inflation. In parts of the Rust Belt, southwest Virginia, eastern KY, and places like that, your property likely declined in value.
It's a complex calculus that I think many people intellectually understand, but don't necessarily empathize with.
I work for the Federal Gov't too, the 1.1% is for those who retire after 61 (or is it 62?)--right? otherwise it is 1%, unless you are law enforcement or firefighter who get 1.7% (maxed at 20 years--anything more is at 1%). In my case I will have 33 years total--20 as law enforcement (1.7%) and another 13 at 1%.
The one big difference between TSP and a 401K (aside from limited funds to invest in compared to a lot of civilian plans) is that federal retirees don't have to wait until they are 59 1/2 to withdraw as long as they are at their minimum retirement age.
FERS retirees aside from LEOs and Firefighters to get the 1.1% calculation they have to be either age 55 + 30 years or age 62 + 20 years. I am already 62 and will make 20 years in September of 2020 but plan to do 3.5 additional years because of very little salary growth since around 2008. So those additional yeas will get me to the average high 3 salary that I expected would have happened at 20 years. No big deal for me because I very much like my job, and max contributing my TSP another 3.5 years will never hurt.
This forum is mostly affluent people. Sure, there are exceptions, but they are generally upper middle class and beyond.
I posted about my mother, who is 61 and bailing out before she turns 62, immediately taking SS, etc., a few weeks ago. My parents have low six figures ($100k-$150k) in all retirement savings plans. They have a bit of home equity (probably $60k-$80k), a bit of pension income from various places they've worked, and SS. They still have a mortgage and a car payment. Dad has hinted around that they want to buy my aunt's half out of my grandmother's house when my grandmother dies to get into a more affordable living situation. It's going to be tight.
This is going to be a very common situation in the population-at-large, but there are relatively few people in that situation on this forum. I have a small town/rural perspective from flyover country. I know a lot of folks in their late 50s/early 60s in real life. Most seem to be closer to my parents' situation than the situation the majority of the folks on this board are in.
There is also a coastal bias that I've noticed. I can't tell you how many threads I've seen from people who've lived and worked in affluent coastal areas who have or are planning to bail out to places like where I'm at.
Someone who had been posting on here fairly frequently began talking to me about moving to my local area from a more affluent coastal state years ago. I got to know the guy fairly well over time. He seemed to have an average job and was extremely cost-conscious, which was one of the reasons he was considering Tennessee at all. Being interested, I dug through some of his posts and he had posted somewhere he had about $800k in his 401k. With his home equity, he's a millionaire. That's not "rich," but it's a hell of a lot wealthier than most people around here will ever be able to achieve.
When you've lived and worked in a low cost area like I'm in your whole life, you probably don't have the equity to bail out somewhere else. There might not be many cheaper places. That house a couple in metro Boston bought several decades ago for $150k might be sitting at $700k now. Here, the house you bought a couple decades ago probably appreciated around the rate of inflation. In parts of the Rust Belt, southwest Virginia, eastern KY, and places like that, your property likely declined in value.
It's a complex calculus that I think many people intellectually understand, but don't necessarily empathize with.
This is why the best advice is to go to HCOL to work or buy a house, you get the high salary and high housing cost, but when it comes to retirement, you have more options.
But some people don’t want to do it. They want to be close to their relatives, or the areas that they know well. I look at New England as much more affordable then where I am living.
While all of this is undoubtedly good advice, I do think Serious Conversation has a point. He is a good bit younger than most of the posters on this retirement forum, who were much more likely to have a pension program at work. Even the program I had at Seattle city government was being reduced for new hires about the time I retired. I bet most of the posters on here worked for government or large industries that provided generous benefits and retirement programs. I was lucky to start working for city government at the age of 42, which allowed me to work 20 years and retire pretty comfortably at 62. If not for that, I would be in the "work until I drop dead at my desk" category. I really feel for younger workers today. All that said, Serious Conversation, if there is any way you can get on with the government at any level, I would say go for it! Either that, or move someplace like Seattle where you can make more $$$.
I'm 33 and graduated college in 2010. At that time, finding any sort of employment was just a herculean effort. A lot of my peers had nothing at all or really low end work in retail, fast food, etc.
My first job out of college was a low wage role at a defense contractor. When I was hired in 2010, all of the staff came in as direct hires of the company. Over the next couple of years, that went to a mix of employees and contractors. By 2014/2015 or so, all new hires were contractors. Most of the contracting firms offered no benefits of any kind, or were so expensive that they were unaffordable on the $15/hr or so the job paid.
Someone mentioned the short tenure. I worked for a local company who was a labor vendor to Eastman Chemical Company, a Fortune 500, in their IT department. Eastman does have an IT department, but probably half to two-thirds of the actual "butts in seats" are T-O contractors. T-O is only paid for a certain amount of hours per pay period. They have to have X number of people for coverage, and the most efficient way to do that is to hire more people and keep them all part-time. I worked for that contractor for six months and never had insurance, retirement, or any other benefits. The team I was on had a couple dozen employees, all part-time with no benefits. Sure, you can try to bootstrap, and if you try hard enough, something will probably turn up, but the reality is that the job market, at least locally, has been awful historically and that's why this kind of thing can happen. When I lived in Indianapolis, you could basically walk across the street and get another decent job. You might not find anything for months here.
This is very common in the IT world. Contract the work out to the lowest bidding labor vendor, pay the contractors pennies on the dollar, and don't give them any benefits to keep the overhead low. This is a totally different world that people who work in large companies that do provide benefits (like where I am now) or especially a government employee with all those cushy perks would be aware of.
Quote:
Originally Posted by NewbieHere
This is why the best advice is to go to HCOL to work or buy a house, you get the high salary and high housing cost, but when it comes to retirement, you have more options.
But some people don’t want to do it. They want to be close to their relatives, or the areas that they know well. I look at New England as much more affordable then where I am living.
It's easier said than done. Let's say I want to move to metro Boston. First, I have to land a job.
I used to work a company based in Burlington, MA - metro Boston. A 1BR in a comparable apartment to where I am now (which rents for $750/month) is about $2,400/month in the suburban town where this office was. I have to come up with a first, last, security deposit, and maybe deposits for utilities. In the superstar cities, you may end up having to pay an apartment broker. That was a completely alien concept to me before I worked there. All told, and with my own moving costs, it could easily cost me $10,000 as a single guy in a 1BR just to get there! At my income level, that's a pretty big chunk of change, and most of the people where I am are not as well off as I am.
Then you have the whole issue of "he's from TN - he's low wage and will take whatever." You might make $40k for a job in TN. In metro Boston, the market rate might be $80k, but the offer might come in $60k-$70k, because, hey, that's a huge raise for the TN candidate and they're likely to bite at the percentage pay raise.
The cost of living calculators say I basically need to double my income to move to Boston. My gut feeling, having some familiarity with the area having been there about a week a month on business for two years, is that I probably need a bit more than that. I'm unlikely to get an offer at that level.
Last edited by Serious Conversation; 07-30-2019 at 10:06 AM..
FERS retirees aside from LEOs and Firefighters to get the 1.1% calculation they have to be either age 55 + 30 years or age 62 + 20 years. I am already 62 and will make 20 years in September of 2020 but plan to do 3.5 additional years because of very little salary growth since around 2008. So those additional yeas will get me to the average high 3 salary that I expected would have happened at 20 years. No big deal for me because I very much like my job, and max contributing my TSP another 3.5 years will never hurt.
Good info, I had never heard of that 55 and 30 years before.
My wife gets to retire 3 years before me--she will have 30 years of service (non law enforcement) at her minimum retirement age. Unlike you she doesn't like her job much and intends to go as soon as she is eligible--I wish she'd consider staying a little longer but that is an argument I know I won't win. I might have another promotion in me before retirement and that may change when I go but as of now I plan to be retired within the year after my eligibility date.
This forum is mostly affluent people. Sure, there are exceptions, but they are generally upper middle class and beyond.
...I have a small town/rural perspective from flyover country. I know a lot of folks in their late 50s/early 60s in real life. Most seem to be closer to my parents' situation than the situation the majority of the folks on this board are in.
There is also a coastal bias that I've noticed. I can't tell you how many threads I've seen from people who've lived and worked in affluent coastal areas who have or are planning to bail out to places like where I'm at.
...It's a complex calculus that I think many people intellectually understand, but don't necessarily empathize with.
I've lived all my life on Long Island which is generally considered (on the whole) to be middle/upper-middle class and beyond ... sometimes waaay beyond, LOL. It's one of the highest COL areas in the country and while I do see a few people of my acquaintance doing exactly what you describe by heading toward places like Alabama and Tennessee in retirement, those friends are all in the middle rather than upper middle class economic segment. The "upper middle" people I know plan to eventually migrate to places like the Carolinas or Florida, or they have decided to remain here. Often the overriding factor for those who chose to stay is family. In my case that's not true although I'm sure some people I know assume so; it's easier to let them think that than to go into a lengthy explanation of why I'd rather have less money here than more money elsewhere, LOL
It's easier said than done. Let's say I want to move to metro Boston. First, I have to land a job.
I used to work a company based in Burlington, MA - metro Boston. A 1BR in a comparable apartment to where I am now (which rents for $750/month) is about $2,400/month in the suburban town where this office was. I have to come up with a first, last, security deposit, and maybe deposits for utilities. In the superstar cities, you may end up having to pay an apartment broker. That was a completely alien concept to me before I worked there. All told, and with my own moving costs, it could easily cost me $10,000 as a single guy in a 1BR just to get there! At my income level, that's a pretty big chunk of change, and most of the people where I am are not as well off as I am.
Then you have the whole issue of "he's from TN - he's low wage and will take whatever." You might make $40k for a job in TN. In metro Boston, the market rate might be $80k, but the offer might come in $60k-$70k, because, hey, that's a huge raise for the TN candidate and they're likely to bite at the percentage pay raise.
The cost of living calculators say I basically need to double my income to move to Boston. My gut feeling, having some familiarity with the area having been there about a week a month on business for two years, is that I probably need a bit more than that. I'm unlikely to get an offer at that level.
I moved to Boston when I first graduated from college with zero money. Of course it’s easier said then done, it’s also easier to complain then do something about it. For the records, I made $24k in 1982, I paid $450 a month for a condo in Andover, a very nice area.
I had no choice, at least I didn’t think I had any choice, either that or staying in SoCal, where both of my brothers were under employed for years. Yes, I could say I’m always a risk taker. Maybe you are not that type.
This forum is mostly affluent people. Sure, there are exceptions, but they are generally upper middle class and beyond.
I posted about my mother, who is 61 and bailing out before she turns 62, immediately taking SS, etc., a few weeks ago. My parents have low six figures ($100k-$150k) in all retirement savings plans. They have a bit of home equity (probably $60k-$80k), a bit of pension income from various places they've worked, and SS. They still have a mortgage and a car payment. Dad has hinted around that they want to buy my aunt's half out of my grandmother's house when my grandmother dies to get into a more affordable living situation. It's going to be tight.
This is going to be a very common situation in the population-at-large, but there are relatively few people in that situation on this forum. I have a small town/rural perspective from flyover country. I know a lot of folks in their late 50s/early 60s in real life. Most seem to be closer to my parents' situation than the situation the majority of the folks on this board are in.
There is also a coastal bias that I've noticed. I can't tell you how many threads I've seen from people who've lived and worked in affluent coastal areas who have or are planning to bail out to places like where I'm at.
Someone who had been posting on here fairly frequently began talking to me about moving to my local area from a more affluent coastal state years ago. I got to know the guy fairly well over time. He seemed to have an average job and was extremely cost-conscious, which was one of the reasons he was considering Tennessee at all. Being interested, I dug through some of his posts and he had posted somewhere he had about $800k in his 401k. With his home equity, he's a millionaire. That's not "rich," but it's a hell of a lot wealthier than most people around here will ever be able to achieve.
When you've lived and worked in a low cost area like I'm in your whole life, you probably don't have the equity to bail out somewhere else. There might not be many cheaper places. That house a couple in metro Boston bought several decades ago for $150k might be sitting at $700k now. Here, the house you bought a couple decades ago probably appreciated around the rate of inflation. In parts of the Rust Belt, southwest Virginia, eastern KY, and places like that, your property likely declined in value.
It's a complex calculus that I think many people intellectually understand, but don't necessarily empathize with.
Yes, if you choose to call me one of those affluent coastal posters go for it. But let me tell you a little bit about my roots which were very far from affluent. Both of my late parents were of the Depression era and dirt poor no different that most of their family members. But the difference between them and their family members who many remained poor their entire lives was both believed especially my father that their past did not have to dictate their future, and they were going to do everything they could to make a better life for them and their children. And if you think in this day and age you are having a hard time making a better future for yourself, try being a 13 year old boy in 1936 whose mother just died of cancer leaving behind 7 children in the care of their alcoholic father. My father being 3rd from the oldest was given a nickel by his father and sent packing to make his way in the world because there was not enough money to feed all 7 kids. Through the kindness of the Amish, my father was able to obtain very hard farm work on Amish farms. He was paid a modest wage and fed, but with so many of their own kids there was no room in the houses for my father to sleep so he had no choice but to sleep in the barns with the animals. At 16 his older brother who was working in logging camp in Oregon sent my father a bus ticket to join him as there was work for him in the logging camp which is where he worked until he turned age 17 and could join the Navy. Not much after finishing boot camp my father was on a ship headed to do battle in the Pacific during WWII. Despite his ship getting sunk in Guadal Canal he miraculously survived, and following the war stayed in the Navy for a total of 25 years retiring with a rank of BMC which was quite an accomplishment for someone with an 8th grade education. My mother had to quit school in the 11th grade to go to work in a sweat shop sneaker factory that was to years later become Converse to not only help her immediate family, she was more often than not buying groceries for the families of her poorer cousin's and additionally helping pay her paternal grandmother's rent because she had so little income.
So hopefully you can see that my roots are as far from affluent as you can get. And the only reason my maternal immigrant family ended up in my coastal town was some who were in the fishing industry in Italy could get fishing jobs here back in the day when there were no yachts in the harbor but only fishing boats. And the rest of my family could get jobs in sweat shops as my town many years ago was filled with factories that would hire uneducated non English speaking immigrants. That being said I really get a kick out of people like you who judge people like me as a result of where we live but have no clue of what our roots were that got us here.
No worries about this coastal resident relocating to TN and for no reason other than I like living in my coastal town and TN is landlocked and quite a distance from salt water. And I am pretty sure all my neighbors of 20+ years will too be staying put and will pay the price by working longer and saving harder to make that happen.
I have a decent 401(K), one small pension, maybe two, and SS (when I'm eligible). DH has a very good pension, no SS, he had a super small retirement account that was used up for immediate stuff.
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