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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 81640  
Subject: Re: confused about early retirement and withdraw Date: 1/10/2004 9:46 PM
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ptheland writes,

Let me summarize the prior answers.

Your mother is correct. There is a penalty if you tap your IRA or 401k before you reach 59 1/2. You can avoid that penalty by taking what are called Substantially Equal Periodic Payments (SEPPs). These payments are exactly that - the same amount each year (with some minor variation allowed). They must contine until you are 59 1/2 or for at least 5 years if longer.

Because these payments are going to be the same from the time you retire until you're 59 1/2, I'd highly recommend having some significant amount set aside in a taxable account to allow you to take more or less out of that as you need in retirement.

If all of your money is in IRAs, and you retire at 40, then you would have to be taking SEPPs for 20 years. That's a long time to be on a fixed income with little flexibility.

Not if you use the life expectancy or "minimum method" for your SEPP.

I retired in 1994 at age 38 and have been making SEPP witdrawals since 1996 under the minimum method. Since the withdrawals increase (or decrease) with your year-end portfolio balance, it's very likely that they'll grow over time.


My annual SEPP withdrawal has been greater than my living expenses since 1997.

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