They've executed everything correctly in theory. In their mid-40s, with nearly $2 million saved, clearly defined spending figures, and a practical approach to reducing work hours in the next five to seven years. Yet, they still feel uncertain.
In this Q&A session, we delve into the doubts that arise just before a significant financial shift, even when the data suggests it should be viable. The first listener question focuses on how to financially support an early-career reduction without inadvertently tying oneself to a strategy that may restrict flexibility in the future. We discuss withdrawal sequencing, the significance of having a large taxable brokerage account, and why making early commitments to strict rules can seem riskier than maintaining the current situation.
We also briefly address two more listener inquiries, one regarding the decision between using a 529 plan or a 457(b) for college expenses, and another that introduces a more nuanced asset-location strategy involving bonds and tax efficiency. While these discussions enrich the conversation, the primary focus of this episode is the uncomfortable gap between achieving financial independence and making actual life changes.
Listener Questions in This Episode
Slade inquires: How should we finance a career transition in our early 50s, and does a 72(t) withdrawal make sense with a substantial taxable brokerage account? (1:44)
David asks: Should we prioritize a 529 plan or a 457(b) first for our child's college expenses if the 457(b) may not be needed for retirement? (21:55)
Graham asks: How can swapping assets between taxable and pre-tax accounts lower taxes while maintaining the same asset allocation? (38:10)
Key Takeaways
Why the feeling of being “almost ready” can be more unsettling than not being ready at all.
The subtle balance between flexibility and certainty when planning an early career transition.
How a seemingly smart strategy on paper can later confine you.
What truly shifts when your taxable brokerage account becomes your main financial bridge.
Why future tax considerations can seem more significant than current net worth.
Resources and Links
Afford Anything Episode 94, a detailed examination of 72(t) early withdrawal regulations.
Chapters
Note: Timestamps are approximate and may vary significantly across different platforms due to dynamically inserted advertisements.
(0:00) Setting the stage for the early retirement challenge
(1:44) The underlying question of a $2 million portfolio
(6:04) The appeal of 72(t) and its potential drawbacks
(13:32) Reducing risk without sacrificing flexibility
(25:55) College funding decisions and unforeseen tradeoffs
(46:10) Asset swaps, tax efficiency, and behavioral intricacies
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Should you consider using a 72(t)? Discover when it benefits early retirees and when opting for flexible taxable withdrawals may be the preferable option.