I’m looking to retire at 50 and live off of $150k a year with no debt – is my nest egg big enough?

A Reddit user is thinking of retiring at age 50 and is hoping that he can afford to do so and spend $150,000 per year. However, he wants to make sure that he is setting himself up for success and withdrawing the right amount of money from the right accounts at the correct time. 

So, can he leave work and start enjoying his golden years?

How much money do you need to retire at 50?

The Reddit user provided some details on his financial numbers. Specifically, he has:

• $5 million in brokerage accounts
• $3 million in 401(k) accounts
• $0.5 million in a Roth IRA
• $0.5 million in an HSA

This gives him a grand total of around $9 million. At a safe 3.7% withdrawal rate, that $9 million would give him an annual income of $333,000. Since he is only hoping to spend around $150,000, he is going to have more than enough to live comfortably. In fact, while he will incur some extra costs due to early retirement — like healthcare expenses until he reaches the age when he becomes eligible for Medicare — he should have no real financial worries at all. 

How should he organize his withdrawals?

The Reddit user also asked in his thread about how he should organize the withdrawals. This is an important question because when you have a lot of different accounts, it can be challenging to decide which ones to withdraw from first. 

In general, he’s likely going to have to pull from his taxable brokerage accounts first. That’s because when you retire at 50, you can’t access money in your tax-advantaged retirement accounts yet as you typically can’t make penalty-free withdrawals until age 59 1/2. The Rule of 55 could make some 401(k) funds available before age 59 1/2 in certain circumstances, but since the Redditor is retiring at 50, that’s not going to help him. 

Withdrawing money from taxable accounts early on is also beneficial in most cases because this strategy allows your tax-deferred accounts to continue growing. Plus, you can aim to manage your withdrawals from your taxable account to ensure you pay the lowest possible capital gains tax rate, which is well below your ordinary income tax rate. You’ll just need to make sure you’ve held your assets for over a year before selling. 

Once the Redditor turns 59 1/2, he may want to start pulling some money from his 401(k) to avoid having to take huge Required Minimum Distributions when the time comes. If he can more evenly distribute his distributions over retirement, he’ll avoid a sudden increase in income that could have major tax consequences. The HSA funds, meanwhile, should be kept for healthcare expenses ideally since money can be withdrawn tax-free from those accounts to cover qualifying medical needs. Finally, Roth funds should usually be left alone to grow as long as possible to generate more tax-free income later in retirement, and since no RMDs are required on Roths. 

These are general rules of thumb for organizing your withdrawals, though, and they may not be the right ones for everyone. The Reddit user — and anyone else who is retiring — may benefit from a consultation with a financial advisor to help them develop a strategic withdrawal plan that minimizes their tax burden and ensures they have as much money as they can for a secure future.

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