Important Considerations for Those Who Want to Retire Early

When Do You Plan To Retire? That was the question our financial advisor asked the very first time we met together.  Since my wife and I were both in our early 20’s, we said 50.  We figured 50 is really old and if we waited much longer we would probably need to do all of our traveling in wheel chairs.  Now that I’m in my 30’s, 50 doesn’t seem quite so old.

Retirement planning for young people is difficult because there are so many variables.  Who really knows when they want to retire and how much is enough for retirement?  If you want to retire early you will need to determine your retirement needs.

Photo by the the_tahoe_guy via Flickr.

Still…within a week or two, we had a few investments set up including a Roth IRA. Interestingly, if you withdraw funds from your IRA before you are 59 1/2, you’ll pay a 10% penalty.  I didn’t realize it at the time, but how can I say I want to retire at 50 and be set up for a retirement savings plan that penalizes me if I get the money before 59 1/2?

Obviously, our financial advisor either didn’t think that was possible, or just didn’t pay attention.

So what if I do want to retire early?

Then I should not be investing exclusively in a Roth IRA — and neither should you.

Honestly, I’ve never even considered using something other than a retirement vehicle (like a Roth) to save for retirement.  But, what I’ve done unintentionally is I’ve let the government dictate when I should retire.

Do I want them to penalize me for my money if I get it before I’m 59 1/2?

Should You Use A Retirement Plan If You Want To Retire Early?

Since the Roth and Traditional IRA have different tax consequences, the answer depends on the investment vehicle you are using and the combination of retirement plans you use.

Traditional IRA

If you are using a Traditional IRA, then you should remember you are going to pay your taxes to the government when you withdraw your money.  Personally, I prefer Roth IRA, because you pay the taxes now and all of your savings and investments will be accessible to you when reach the eligible retire age — without any rules are restrictions.

The only exception would be if the deduction from your IRA decreased your income tax bracket.

Roth IRA

The Roth IRA is a difficult choice.  The reason is that your gains grow tax free so it does provide a significant advantage for you to have funds in the Roth.  Well, if you are considering the possibility of retiring early, then you should keep at least a portion of your income outside of a government retirement vehicle — enough to get you from your early retirement until you are 59 1/2.


A 401(k) is similar to a Traditional IRA in term of tax characteristics. However, if you are getting a match on a 401(k) or similar, then go ahead and max out these funds.  It might take longer to save up for an early retirement, but you’ll only need enough savings to get you to retirement age when you know there will be a 401(k) nest egg waiting for you.

Early Retirement Conclusion

I’m not advocating that anyone stop saving for retirement in a retirement vehicle unless those plans conflict with your personal financial goals.

In my case, I don’t really think I’m going to retire in 5 years.  In fact, I’m not sure I’m retirement material.  Some folks think early retirement is a bad idea.  Either way, the sooner I plan to retire, the more money I need to save outside a retirement vehicle.

What investing tips do you have for those who might wish to retire early?  Would you stop using a traditional retirement savings vehicle if you were considering early retirement?

About the Author

By , on May 5, 2010
Craig Ford
Craig Ford is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

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Leave Your Comment (9 Comments)

  1. Kim Luu, Money and Risk says:

    Craig, your earnings can also be taken out penalty free from a Roth IRA as well as long as you are doing a equal distribution schedule and it has been five years or more since you put the money in the Roth IRA.

  2. Ryan says:

    Keith, the Thrift Savings Plan functions the same as a 401k plan, which also has similar features to a traditional IRA. For example, you make tax deductible contributions which grow tax free until you withdraw them at retirement age, at which time they are taxed.

    Leaving your money in the TSP will have the same affect as rolling it into a Traditional IRA. However, there are a couple advantages to leaving the money in a TSP, and a couple to rolling it into an IRA. It’s too much to go into in this comment, but you can read about it here: Should You Rollover Your TSP Account Into an IRA?.

  3. Keith says:

    If I’m transferring money from, say, a Thrift Savings Account, moving it into a traditional IRA would allow me to collect interest on the money that would otherwise have to use to pay taxes, right?

  4. Craig Ford says:

    @KT and Danielle
    Thanks for helping clarify things. Yes, your contributions can be taken out tax and penalty free from a Roth IRA before 59 1/2. However, earnings are subject to a 10% distribution fee (unless it is a qualified distribution). I should have been more clear about this in the article.

    I’ve read FS’s article. At the start of the article I mentioned that we were asked to give and age and I did say 50 for no reason other than the fact that our advisor asked us to give a number.

    However, by the end of the article I did say, “In my case, I don’t really think I’m going to retire in 5 years. In fact, I’m not sure I’m retirement material.”

  5. Kim Luu, Money and Risk says:


    You can take withdrawal from your retirement accounts penalty free if you do an equal distribution over a period of time. You have to adhere to IRS standards and once you commit to the payments (it’s like creating an annuity stream), you have to continue withdrawing each year until the amount is gone. You need to manage the amount by managing the accounts.

    There are also exemptions for penalty free withdrawal such as excessive medical expenses, disability, etc…

    Your advisor should have known this and given you the information. He/she should have also set up multiple vehicles at that time for you after you stated that you plan to retire at 50 to handle income distribution prior to 59 1/2. There should have been a plan to handle issues about qualification for Social Security as well.

  6. Linsey says:

    Craig – You may want to read Financial Samurai’s article last Friday called “The Dark Side Of Early Retirement.” It goes into much more depth, and discusses much more transcendental type questions. It’s easier to understand how to get there (max out your 401, save X, etc).

    But it’s probably more important to deeply question yourself why you want to retire at 50.

  7. Danielle says:

    I think one really important thing to note is that with a Roth IRA you can take out YOUR contributions, but not the interest until your 59.5 years old. So if you were good and could live on your own contribution portions for 10 years, you’d have the interest to live on beyond that. Its all about how much you’ll need and how much your putting in, but its LESS locked and more flexible than a traditional IRA, IMO.

  8. KT says:

    One BIG hole missing in your article: It’s important to note that you can withdraw contributions from your Roth IRA penalty free at any time. You only incur the early withdrawal penalty on the gains from those contributions.

  9. Jersey Mom says:

    Since my 20’s, I’ve put money in both retirement accounts and regular investment account. Yes, I know I won’t be taking the money out of ret accts until 59 1/2 but I also have what I’ve put away in other accts as a bridge between whenever we decide to “retire” and when we reach “retirement age”.

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