Podcast Summary: "Can I Use the Rule of 55 and Retire?"
Podcast Information:
- Title: Jill on Money with Jill Schlesinger
- Host/Author: Audacy
- Episode: Can I Use the Rule of 55 and Retire?
- Release Date: April 14, 2025
Introduction
In the April 14, 2025 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, alongside co-host Mark, delves into the complexities of early retirement using the Rule of 55. The episode centers around a listener’s query about retiring early at the age of 55 and whether the Rule of 55 applies to her financial situation.
Caller Introduction: Maureen's Situation
[02:34] Maureen: "Good, how are you? Jill and Mark, we're doing great."
Jill welcomes Maureen, a 54-year-old professional from Upstate New York, who is contemplating early retirement due to dissatisfaction with her current job. Maureen has been employed for 31 years and is considering retirement to seek personal happiness and freedom after significant changes in her workplace.
Financial Overview
Maureen's Financial Snapshot:
- Age: 54 (Turning 55 in December)
- Employment: 31 years in the same job, earning $109,000 annually
- Marital Status: Widowed since 2021; no children
- Retirement Assets:
- Inherited IRA: $1,200,000 (treated as a spousal IRA with no mandatory withdrawals)
- Current 401(k): $1,400,000
- Roth IRA: $420,000
- Small Inherited IRA: $26,000 (to be used within 10 years)
- Brokerage Account: $88,000 (all in individual stocks)
- HSA: $10,500
- Savings Accounts: High-yield savings ($155,000) and regular savings ($74,000)
- Real Estate:
- Primary Home: Valued at $430,000 (fully paid off)
- Second Home (Down South): Valued at $582,000 with a mortgage of $270,000 at a 2.875% interest rate (currently being rented out)
[04:20] Maureen: "The inherited IRA is $1,200,000."
Understanding the Rule of 55
Jill and Mark explore whether Maureen can utilize the Rule of 55 to retire early. The Rule of 55 allows individuals to withdraw from their 401(k) without the usual 10% penalty if they leave their job during or after the year they turn 55.
[07:37] Jill Schlesinger: "There's no way you spend 10, but let's do 10."
Key Points Discussed:
- Eligibility: Maureen is nearing 55 and considering using the Rule of 55 on her 401(k).
- Employer Confirmation: Maureen has confirmed with her employer that she qualifies for the Rule of 55.
- Inheritance Consideration: The inherited IRA does not qualify for the Rule of 55 and must be addressed separately.
Financial Strategy and Advice
Jill and Mark assess Maureen's financial health and provide a strategic plan for her retirement:
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401(k) Withdrawals:
- Strategy: Treat the $1.4 million in the 401(k) as deferred income.
- Withdrawal Plan: Suggest taking $110,000 annually, aligning with her current salary, to maintain her tax bracket and ensure sustainability.
- Tax Implications: Maintaining withdrawals within the 22% tax bracket.
-
Inherited IRA:
- Handling: Allow the $1.2 million to continue growing until required, minimizing withdrawals to manage tax liabilities.
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Additional Assets:
- Roth IRA: Continue aggressive growth with a 100% stock allocation ($420,000).
- Small Inherited IRA: Scheduled withdrawals over 10 years.
- Brokerage Account: Maintain as a "Fun Money" account with individual stocks.
-
Real Estate:
- Primary Home: Fully paid off, providing a stable residence.
- Second Home: Consider selling within a few years to supplement retirement funds, as maintaining both properties might become burdensome.
-
Health Insurance: Plan to purchase private health insurance upon retirement.
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Lifestyle Adjustments: Encourage Maureen to enjoy her retirement and embrace the freedom she seeks.
[09:17] Maureen: "The game plan would be to treat that $1.4 million as almost like your deferred income."
[12:24] Maureen: "I want to own a house."
Notable Quotes
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Jill Schlesinger [07:18]: "How much you spend, you big saver, you?"
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Maureen [07:21]: "I live a pretty simple life. When I budgeted for the last three years, I really kind of drilled down everything. On the conservative side, it's 8, but we can go 10."
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Jill Schlesinger [09:00]: "I don’t think you’re going to be the dream crusher today, Jill."
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Maureen [12:27]: "Well, that's what I figure. You know, life is short, and you should try to be happy. So this is a step, I think."
Conclusion and Final Recommendations
Jill and Mark conclude that Maureen is in an excellent financial position to retire early using the Rule of 55. They affirm that her retirement savings and strategic planning will support her desired lifestyle. The hosts encourage Maureen to proceed with her decision to retire, emphasizing the importance of personal happiness and fulfillment.
Jill's Final Advice:
- Embrace Change: "Life does deliver some horrible and wonderful things. So here's your wonderful thing for today."
- Next Steps: "Think about giving your notice at the end of the year and get yourself together and enjoy what comes next."
Maureen expresses gratitude for the guidance, feeling more confident about her decision to pursue early retirement.
Key Takeaways
- Rule of 55 Eligibility: Crucial for those seeking early retirement, but it applies only to specific retirement accounts like the 401(k), not inherited IRAs.
- Comprehensive Financial Planning: Assessing all assets, liabilities, and income sources is essential for making informed retirement decisions.
- Sustainable Withdrawal Strategies: Ensuring that annual withdrawals align with current income levels to maintain tax efficiency and fund longevity.
- Personal Fulfillment: Prioritizing personal happiness and life satisfaction is as important as financial readiness when considering retirement.
Whether you're contemplating early retirement or simply seeking to optimize your financial strategy, this episode of Jill on Money offers valuable insights and actionable advice to help you navigate your financial journey with confidence.