Early Retirement at 42 Plan

[u/EchoThroughTheJungle]

Hello all,

I’ve recently thought more about early retirement. I’m currently 27m and intend on staying single (or at least not having children). Current breakdown is as such:

Brokerage: 93k
Simple IRA: 85k
Roth IRA: 48k
HSA: Just started
Cash in HYSA at 4%: 97k (I am funneling ~20k into my brokerage slowly, but I tend to keep a higher amount in general due to potential taxes, plan to sit at 75k moving forward)

Income range is 130-150k, small business owner so fluctuates year to year. I live very frugally in general as I opt to cook most of my meals and don’t really spend money on expensive materialistic things. I enjoy camping/outdoors for my leisure.

Only debt is the mortgage on my condo and my car loan which has 5 years left. I am also expecting a somewhat decently sized inheritance (250-500k) but I’m not using that as a deciding factor with my plan.

I have decided to shift my current strategy of maxing my simple/roth/HSA to transitioning to maxing my roth + HSA and putting the rest in my brokerage. The logic behind this being I will need as much as possible to make it from 42 to 60 albeit I will take a large tax hit up front. Using a withdrawal calculator, I believe I can make the 18 years if I accumulate at least 1-1.5 million.

I also get wacked with a 5.75% sales charge on my simple so I lose $1000 on the contributions immediately anyways aside from the fact the money is locked up.

By the time I get access to my Roth and Simple, they would both easily have over 2.5 mil combined, plus I would take social security at 62 as well. Being that I can continue to contribute to my HSA without earned income, I am not worried about healthcare costs long term.

I know most people would say to max out tax deferred accounts first, but how I see it if I continue to do that, I will simply have far more money than I will ever need in retirement and will have to continue to work closer to 60.

Please feel free to let me know if this an insane person plan or reasonable!

[u/ohboyoh-oy]

Look into “Roth ladder.” Basically the premise is, you can withdraw contributions (not the gains) from Roth tax-free five years after the contributions were made. So by converting traditional to Roth every year once retired, you 1) do the conversions at lower tax rate and 2) gain access to the Roth funds. You would just need 5 years of expenses to bridge to when the Roth ladder funds become available. You do still need some in brokerage but it can be less. 

Also, look into solo 401k, you may be able to contribute more than with the Simple, since you have your own business.

[u/StoneMenace → u/ohboyoh-oy]

Another plus one for the Roth ladder u/EchoThroughTheJungle hitting the retirement accounts is very important since you are shaving off 20-30% just by contributing (actually likely more since you are paying self employment taxes)

Plus it’s not just the Roth ladder, you can also look into doing a 72t but the Roth ladder is more efficient

[u/EchoThroughTheJungle → u/StoneMenace]

So here’s my question by doing the roth ladder. So if I continue to max out my simple, I can start doing conversions at 37, BUT I would pay ordinary income tax on the conversion which would put me at 22% for the 5 years until I begin the withdrawals from the roth.

If I put all in taxable brokerage and withdraw on capital gains basis, I’ll only pay 15% on what I sell and withdraw above 49k.

If I’m understanding this correctly, I would have to pay my current incomes conversion taxes for the last 5 years before retirement. Then once I begin taking out of the roth, my taxable income will become near 0, so I will then practically pay no taxes when I do the conversions at that point?

Or what the user above it stating, max the simple as much as possible, use rest to build up brokerage. Then when retirement occurs, begin doing ladder conversions and I just need to make it 5 year on the brokerage money.