My goal is to retire in four years without touching retirement accounts until 62 – does my retirement plan work?

Making the Dream a Reality

Early retirement is a dream for many, requiring disciplined saving, living below one’s means, and strategic financial planning. While it is often reserved for those with above-average means, it is not a requirement as even modest incomes can live the dream with careful financial management.

A Redditor on the r/ChubbyFIRE subreddit falls more into the former category than the latter, but is not fabulously wealthy. He is 54 years old and has a household income of $390,000. His house is paid off and, through savings and investments, has accumulated a net worth of $3.4 million. He recently outlined an ambitious plan to retire at 58 and a half without touching his tax-advantaged accounts until age 62. 

The Redditor’s strategy involves building a taxable brokerage account, leveraging interest income, and reducing expenses while his wife works until age 58. So let’s evaluate the feasibility of this plan and whether funding his retirement through taxable accounts and delaying retirement account withdrawals can work.

Synopsis of the Redditor’s Plan

Now I’m not a financial planner or tax professional, so these are only my opinions, but the plan seems feasible, with some caveats. 

The Redditor has $2.75 million in tax-advantaged accounts (401ks and IRAs), $300,000 in Roth 401ks, and $350,000 in taxable brokerage accounts (with $250,000 in his personal brokerage). Current annual expenses are $200,000, plus $100,000 in taxes and other costs, totaling $300,000. By 2028, he plans to reduce expenses to $120,000, plus $50,000 in taxes (assuming a single-income status), totaling $170,000. 

Can It Work?

The plan leverages significant financial discipline and a robust starting point. The couple’s net worth provides a strong foundation as he has also reduced future financial burdens by paying off the mortgage and having saved $425,000 for their children’s college expenses.

The strategy to delay touching retirement accounts until 62 maximizes tax-deferred growth, allowing him to potentially reach $5 million by 2032, assuming 6% to 7% annual returns. His planned reduction in expenses demonstrates commitment to frugality, aligning with a 4% safe withdrawal rate. 

Similarly the wife’s continued employment until 58 ensures income and health insurance, mitigating early retirement risks like healthcare costs before Medicare. Using brokerage funds and interest income to bridge the four-year gap till retirement is feasible.

It’s Not a Risk-Free Plan

College costs, even with his savings, could rise unexpectedly, and lifestyle cuts may be difficult with dependents. The plan assumes stable 4% to 5% yields on CDs or Treasuries, but interest rates could fall, reducing income. 

Market volatility poses another risk. A downturn could erode the brokerage account or retirement account growth, especially if contributions falter. Healthcare costs are unpredictable, potentially exceeding $20,000 a year for a family, straining the budget. The plan also lacks a buffer for emergencies, such as job loss or medical issues, which could derail early retirement.

While the wife’s income and health insurance provide a critical bridge, the plan should account for ACA premium changes and potential tax implications of brokerage withdrawals, uch as capital gains taxes. 

Adding a 10% emergency fund to the brokerage target would enhance the plan’s resilience. The projected $5 million in retirement accounts by 2032 is plausible with continued maxed contributions and 6% returns, supporting a 4% withdrawal rate, but inflation could erode purchasing power.

Key Takeaway

The Redditor’s plan to retire in four years without touching retirement accounts until 62 is ambitious but feasible with disciplined expense reduction, stable investment returns, and no major disruptions. 

However, its tight margins and reliance on optimistic assumptions introduce risks that could derail early retirement. Working with a qualified financial advisor is critical to refine this plan. Advisors can provide precise projections, stress-test assumptions, optimize tax strategies, and recommend diversified investments to offset market risks. Their expertise ensures a tailored approach, balancing the couple’s ChubbyFIRE goals with financial security. 

For most investors, consulting a professional offers clarity and confidence, and can turn an ambitious dream into a sustainable reality.

 

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