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Thinking about retiring early with $3.8 million saved? It sounds like you’re set, but without the right strategy, you could end up paying six figures more in taxes and healthcare premiums than necessary.
Here’s how we helped a real couple, ages 55 and 57, build a clear and confident path to early retirement.
Their Situation
- Ages: 55 and 57
- Saved: $3.7–$3.8 million (mostly in pre-tax 401(k)s and IRAs)
- Current Mortgage: $120,000 at 3–3.5% interest
- Original Plan: Retire in 2029
- New Goal: Retire January 2027
- Target Spending: $12,000–$14,000/month after tax
After losing parents and facing growing work stress, they wanted work to become optional sooner, not because they hate their jobs, but because they value time, travel, and experiences.
They’ve now fully committed to their custom 5 Seed Plan™, which connects taxes, income, investments, healthcare, and legacy.
Healthcare & ACA Subsidy Strategy
Healthcare before Medicare (age 65) can be costly—$1,500–$1,800 per month.
But by managing their Modified Adjusted Gross Income (MAGI), they could qualify for about $1,500/month in ACA premium subsidies.
How?
- First, draw from brokerage accounts (using long-term capital gains and tax-loss harvesting).
- Then, tap Roth IRAs/401(k)s—this income doesn’t show up on tax returns.
- Delay withdrawals from pre-tax IRAs until age 59½.
This keeps reported income low while still funding their lifestyle.
Social Security Timing & Roth Conversions
They plan to claim Social Security at 62, not because it’s the highest benefit, but because it fits their tax strategy.
- Claiming earlier allows them to layer Roth conversions during low-income years.
- Reduces lifetime taxes on benefits (up to 85% can be taxable).
- Controls how much taxable income appears on their return.
They’re in year 2 of a 5-year Roth conversion plan. Claiming earlier helps them fill income gaps while managing taxes.
Bridging the Income Gap (Rule of 55)
Between retirement at 57 and age 59½, they need penalty-free access to funds.
- Using the Rule of 55, they’ll withdraw from one spouse’s 401(k) without the 10% penalty.
- After 59½, they’ll pivot to IRA withdrawals.
This approach gives them flexible access while avoiding income spikes and unnecessary taxes.
War Chest Strategy: Protecting the Critical 15
They’re shifting $500K–$600K into short-term bonds and stable value funds to create a “war chest”—covering 3–5 years of expenses.
Why? The first 5 years before and 10 years after retirement "the Critical 15" are the most vulnerable.
A market downturn early can cause permanent damage if you’re forced to sell assets while they’re down (known as Sequence of returns risk).
This buffer:
- Buys time for markets to recover
- Prevents panic selling
- Protects their long-term strategy
Planning for Inheritance & Future Taxes
They may receive a $500,000 inheritance, which could change their tax picture.
We’ve paused aggressive Roth conversions for now, since they’ll be drawing from pre-tax accounts sooner. Instead, we’ll reassess conversions:
- In low-income years
- After any inheritance hits
We’ve also modeled the 10-year rule for inherited retirement accounts to avoid surprise tax spikes.
Investment Philosophy: Keep It Simple
Their plan targets a 6% long-term return, using:
- 3–5 years of living expenses in laddered Treasury bills
- The remainder in diversified U.S. stocks
We ignore generic “risk tolerance questionnaires” and focus on aligning investments with real goals, not just chasing returns.
The Result
This couple is ready to retire in 2027, not because of their account balance, but because they have:
- A clear withdrawal strategy
- Intentional Roth timing
- A healthcare funding plan
- A war chest for market downturns
- Flexibility to pivot when life changes
This is what modern retirement planning looks like.
If you’ve saved $1–10 million and want to find your own “work-optional” date while avoiding tax surprises, it’s time to stop guessing and start planning.
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