The theme this week on the Retirement Quick Tips Podcast is: penalty-free early withdrawals for retirement. 

Today, I’m talking about why taking withdrawals is especially problematic from IRA or 401k accounts when retiring in your 50s. 

Under normal circumstances, if you withdraw funds from a Traditional IRA or 401k account before 59 ½, you’ll pay taxes + a 10% tax penalty on whatever amount you withdraw. While there much you can do to avoid the taxes, you can avoid paying the penalty on those early withdrawals in many cases. 

And that extra 10% penalty on early withdrawals is what makes early distributions from retirement accounts so problematic. So you want to carefully consider other options so you don’t have to tap into your IRA or 401k accounts when you retire early. 

I’ll talk about specific strategies later this week for avoiding those penalties, but for today’s episode, it’s important to understand the full impact of retiring early on your finances and why it’s so critical to avoid paying those extra penalties.

When you retire early, there’s a perfect storm of 3 important factors:

• Needing to make your money stretch potentially a decade longer in retirement, and possibly making your money last for 30-40 years in retirement, instead of 20-30 years in a typical retirement 
• Social security - since the earliest you can take social security is 62, you’ll need more in assets to cover those higher portfolio withdrawals before social security starts 
• Covering the higher medical expenses before medicare starts at age 65 

So it’s a real challenge to try to avoid penalties while dealing with the unavoidable issues of not being covered by social security or medicare in the early years of retirement. Be sure you think through all of the consequences of an early retirement - not just what that means for portfolio withdrawals - prior to deciding to retire early. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance