With over $4 million in the bank, we’re looking to retire later this year – what’s the best strategy for pulling money from our account?

A couple in their mid-30s has amassed a $4.5 million portfolio and is looking to retire this year. The couple shared a post in the Chubby FIRE Reddit group that revealed their finances and wanted some guidance with creating a plan.

The couple currently has a $500k household income and lives in a VHCOL area. They spend $160k per year and intend to move to an HCOL city with good schools. However, they intend to rent out the current house for cash flow instead of outright selling it. They currently have $800k in home equity.

A $1.2 retirement account, $2.1 million investment account, and $100k in cash round out their wealth. Is $4.5 million enough, and are there ways for the couple to optimize their retirement strategy? I’ll share my thoughts, but it would be good to speak with a financial advisor if you can.

Their Age Makes It Risky to Retire

You’re asking a lot for $4.5 million to support a couple in their mid-30s. They also have two children, which means they will have to pay for education, extra groceries, and other costs. It would be easier to retire on $4.5 million if the couple was already in their 50s and their children had already graduated college.

The couple also has it pretty good already, with a $500k annual household income.  They are still in their highest earning years, and it can be hard to climb the corporate ladder again if they return to the workforce in their 40s or 50s.

However, it sounds like one of the spouses has enough flexibility to work a part-time job instead of full-time. A part-time job will reduce the couple’s annual household income, but it can be worth it if the part-timer gets to spend more time with the children.

Anticipate a Market Downturn

The Redditor assumes retirement is possible in 2025, assuming no major market downturn. While it’s feasible to make that assumption for one year, it’s harder to make that assumption over the long run. 

What if the stock market has a bad year where it drops by 20%-50%? It’s easier to recover from that if you are young and still earn income. However, retirees get hurt the most from these drops. Retirees in their 70s and 80s can take out less money and tap into Social Security, but these drops can significantly hurt retirees who are in their 40s. A market crash may force them to return to work.

The Couple Doesn’t Have Enough Money for Their Spending

Although the couple has $4.5 million, not all of it is accessible. Some of it is tied up in real estate, and other funds are in a retirement account. You don’t want to withdraw from the retirement account early since that would trigger a 10% penalty.

The couple only has a $2.1 million investment account and $100k in cash that they can access right now. Another $1.2 million is in a retirement account that they’ll have to wait about 20 years before they can access.

Using the $2.2 million figure ($2.1 million plus the $100k in cash), a 4% withdrawal comes to $88k per year. That’s not enough to keep up with $160k in annual expenses. 

The Redditors have put themselves in a great financial position, but an early retirement can undo all of it. One of the spouses can look for a more flexible part-time job. After the first spouse gets settled and they adjust to the change in household income, it may be possible for the other spouse to pursue a similar path.

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