Early Retirement Question (US-based)

[Cod]

I've been seeing a lot of articles lately about people retiring in their 30s and 40s. Since US retirement accounts require you to be 59 1/2 years old before withdrawing (w/o penalty), what "income" do these people live off of? Withdrawals from regular savings accounts? Investments outside of retirement accounts?

Any help is appreciated.

 

[Vanadium 50]

It's in savings/investments outside retirement accounts. You are limited in how much you can contribute to a retirement account, and by 40 you will not have enough to last you 40 or 50 more years, even if you could withdraw it without penalty.

 

[Evo]

It's in savings/investments outside retirement accounts. You are limited in how much you can contribute to a retirement account, and by 40 you will not have enough to last you 40 or 50 more years, even if you could withdraw it without penalty.

Well, if they've inherited a lot of money or were lucky enough to make a ton of money somehow. I've had friends that were multi-millionaires before 40, they could have quit work. I don't know what all of these "lots of articles" are that the OP claims to have been seeing.

 

[Cod]

@Vanadium 50, I find it interesting people are able to live off interest and some principal from taxable accounts. I'm assuming one has to be actively involved in ETFs, individual stocks, etc. to make this work. I guess I'll just make it easy on myself and work til I'm 60.

Edit by mod: Questionable reference removed

 

[Evo]

@Vanadium 50, I find it interesting people are able to live off interest and some principal from taxable accounts. I'm assuming one has to be actively involved in ETFs, individual stocks, etc. to make this work. I guess I'll just make it easy on myself and work til I'm 60.

Edit by mod: Questionable reference removed

Ok, I won't say what I think of that, thread closed.

 

[jtbell]

[note: Evo gave me permission to add this]

Actually, I've seen some discussion of FIRE on a pretty sober financial/investment forum that I follow (https://www.bogleheads.org/forum/). It's a legitimate topic, although I'm sure there are scammers who use it to try to suck people in.

The basic ingredients for going FIRE "legitimately" seem to be some combination of:

• get a really well-paying job and bust your butt off at it for a while (it helps if both you and your spouse can do it)
• live a very frugal lifestyle so you can save 50% or more of your salary
• invest your money wisely
• when you retire, move to a place with a lower cost of living
• not completely "retire" in the sense of playing golf all day, but switch to doing something that you enjoy and brings in a bit of money without having to cover all your expenses. For example, there's a guy who writes a blog about FIRE, under the name Mr. Money Mustache, who earns a nice bit of money from it.

On the Bogleheads forum, "investing wisely" generally means using broadly-based index mutual funds (in the form of either normal mutual funds, or ETFs), not day-trading or trying to find the next Apple or Facebook. Some people are into owning rental real estate, which obviously can become a job in itself, but some people prefer doing that to working for someone else.

Also, there is a way to withdraw money from tax-deferred retirement accounts before age 59.5, without penalty. The IRS calls this "Substantially Equal Periodic Payments" (SEPP). A Google search for "IRA SEPP" turns up lots of hits including an FAQ from the IRS itself.