I had a solid chance of being able to retire super early at age 55, but a few financial missteps and saving setbacks made that dream virtually impossible. When I was in my 30s, I had already amassed close to $100,000 in my 401(k) account. But I also had two children about to enter college and an underwater mortgage. Now that I'm 40, I decided to sit down and review my retirement plan. I had a rude awakening as I examined my financial situation and read the fine print of my company-sponsored retirement plan. According to an article by Kiplinger, a lot of people are tempted to raid their retirement accounts even though it puts a serious dent in their nest egg. A survey by Ameriprise Financial cited by the article showed the average amount foregone to typical retirement setbacks was $117,000.
Rolling over my 401(k)
My first mistake was assuming my new company's 401(k) plan would be similar to my old company's plan. I assumed I would be able to access my 401(k) at age 55 since the IRS does not impose a 10 percent penalty to anyone who accesses their 401(k) at that age. However, the plan administrator for my new company's 401(k) doesn't allow withdrawals until age 59 and a half. I had been counting on my 401(k) money to carry me through after retiring early at age 55. I no longer have my original 401(k) either since I rolled it into a Rollover IRA, which also can't be accessed until age 59 and a half.
Tapping retirement for college
I don't regret tapping my retirement funds for my sons' college bills, but I do believe it's put me behind. I was able to take money out of my Roth IRA without paying any penalties since I was touching the principal as opposed to the gains. Although I can continue to invest the money remaining in my Roth IRA, it's not likely it will grow to be enough to support my in my late 50s and early 60s.
Getting pay cuts
I have a lot of empathy for people who lose their jobs, a common retirement setback during the recession. I didn't lose my job, but I did receive numerous temporary and permanent pay cuts in the past 7 years. Every time I had to take a furlough day or unpaid day off, I reduced the amount of money being automatically deducted from my paycheck and saved for retirement. Although one or two unpaid days wouldn't have made a difference, my pay cuts totaled thousands of lost wages that I was depending on for retirement. I should have taken on extra work and continued to contribute to my retirement accounts.
Investing after a wipeout
Another reason I can no longer realistically retire at age 55 is because of my retirement savings wipeout. Although I still have some money in retirement, I lost tens of thousands of dollars due to individual stock purchases as well as exchange traded funds tied to the value of gold and gold mining companies. Unfortunately, gold lost its value and some of the companies that I invested in filed for bankruptcy. Now I'm too scared to invest in individual stocks, which historically offer the better returns. I am simply dollar-cost averaging into conservative mutual funds and ETFs that aren't as risky, but probably won't yield as handsome of a return.
Although I ruined my chance to retire at age 55, I may still have a shot at retiring early at age 62 with enough assets. I can't help that I started saving too late or tapped my retirement funds in the past. But I can save more, invest wisely and keep working hard for another 22 or so years. It won't be "nine-to-five until 55," but a lot of savings and work to do until 62.
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