Can I Use the Rule of 55 and Retire?

Summary

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

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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.

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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.

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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."

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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.

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Financial Strategy and Advice

Jill and Mark assess Maureen's financial health and provide a strategic plan for her retirement:

1. 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.

2. Inherited IRA:

   • Handling: Allow the $1.2 million to continue growing until required, minimizing withdrawals to manage tax liabilities.

3. 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.

4. 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.

5. Health Insurance: Plan to purchase private health insurance upon retirement.

6. 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."

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Notable Quotes

• Jill Schlesinger [07:18]: "How much you spend, you big saver, you?"

• 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."

• Jill Schlesinger [09:00]: "I don’t think you’re going to be the dream crusher today, Jill."

• 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."

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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.

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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.

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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.

Transcript

[Alex Asulin]

Hi, I'm Alex Asulin and I'm inviting you to listen to Asulin's official podcast, Culture Lounge. For the last 30 years, Asulin has created books at the center of culture and luxury, covering everything from wine and watches to fashion, travel and Formula One. Now we're inviting you into our world through a new and exciting medium. Join me on Cultural Lounge, where you will hear intimate conversations with icons like Erin Lauderdale, Linda Fargo, Mario Carbone, curators from Sotheby's, and the world's best sommelier, all gathered like old friends at a beautiful bar, discussing their deepest passions, sharing stories and giving us their best advice. It's like eavesdropping on the most interesting conversation you could ever imagine. Culture Lounge is available wherever you get your podcast. Tune in now to be inspired and learn something new.

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[Jill Schlesinger]

Welcome to the Jill on Money Show. It's Monday, Monday, April 14th and we are here answering your questions about your life, your finances, anything that's going on that touches money. Mark and I are both certified financial planners. We want to be there for you. If you've got a question, just go to jillonmoney.com click the contact us button. Write us a note if you'd like to join us live. Check the box. Mark will do everything else. Don't forget all of our content lives on the website, so just bookmark it. You'll be back, we promise. Today we are joined by Maureen who is on the line with us from New York. Hello Maureen, how are you?

[Maureen]

Good, how are you? Jill and Mark, we're doing great.

[Jill Schlesinger]

I should say Upstate New York, because there's a real upstate downstate differential. So I. Because you're going to sound a lot nicer than the average New York City denizen. So what can we do for you today, Maureen?

[Maureen]

Well, I'm 54 years old. I'm going to be 55 this coming December, and I'm fairly unhappy with my job and would like to retire early. So I'm wondering if I am in good enough shape to do that and if I'd be able to use the rule of 55.

[Jill Schlesinger]

Have you been in this job for a long time?

[Maureen]

Yes, 31 years.

[Jill Schlesinger]

Oh, gosh. Have you been unhappy the whole time?

[Maureen]

No, no. The job significantly changed since I started, and it's just time for me to do something else, I think.

[Jill Schlesinger]

Okay. All right. So do you happen to have a pension associated with this job or not?

[Maureen]

No pension. No.

[Jill Schlesinger]

Okay. All right. So why don't we talk a little bit about what else is going on in your life? So you said you're turning 55 later this year, and are you single, married, partnered? What's up with you?

[Maureen]

I lost my husband in 2021, so I'm widowed, and so I do have his inherited ira.

[Jill Schlesinger]

Okay. I'm so sorry for your loss. That's.

[Maureen]

Thank you. Yeah.

[Jill Schlesinger]

Too young.

[Maureen]

But I don't have any children and I don't really have any other commitments.

[Jill Schlesinger]

Okay, so no kids and parents that you don't have to deal with.

[Maureen]

Correct.

[Jill Schlesinger]

Okay, I got it. So let's talk a little bit about what you guys accumulated during your lives and where that leaves you today, so we can make a better decision. So the inherited ira, that's a spousal ira, so there's no rule about getting the money out. So let's talk about retirement funds. Let's do the inherited IRA first. How much is in there?

[Maureen]

$1,200,000.

[Jill Schlesinger]

And what about your own retirement plan, like where you're working now? How much money's in there?

[Maureen]

$1,400,000. About.

[Jill Schlesinger]

Wow. Wow. This guy's made a lot of money. Any other retirement assets besides those two pots of money?

[Maureen]

Yes, we have a Roth of $420,000, and I have a small inherited IRA that I have to use within 10 years of $26,000.

[Jill Schlesinger]

What else? Anything? Oh, I'm sorry, I forgot to ask you. On the other. The big. The big accounts, all traditional, not Roth, correct?

[Maureen]

Correct. And then the Roth is separate, the 420?

[Jill Schlesinger]

Yep. Okay, and what else do you have in terms of savings and investments? How about a brokerage account?

[Maureen]

I do have a brokerage. After this week, it was 88,000. I have an HSA. I don't know if you want to know about that. About ten and a half thousand in there with $2,000 cash to just hang.

[Jill Schlesinger]

On for deductibles and stuff, and savings account CDs, anything like that? Stuff?

[Maureen]

Yep. So I have a high interest saving 155,000 and a regular savings about 74,000.

[Jill Schlesinger]

Is that any of that money earmarked for something like, did you say, oh, I want to redo the roof or I need a car, or like that?

[Maureen]

I mean, I kind of call it my emergency funds, but it's. I'm. I'm a pretty good saver, so.

[Jill Schlesinger]

Yeah, it seems like it. Goodness. How much are you earning right now, Maureen?

[Maureen]

I'm currently earning $109,000 a year.

[Jill Schlesinger]

You own your home?

[Maureen]

I own my home. We had purchased a home before he passed as a potential retirement place. So I do have a second home still. I had been renting that out. Um, but I'm feeling like I'm. I'm not going to continue to rent it out.

[Jill Schlesinger]

What is the primary house worth?

[Maureen]

About 430.

[Jill Schlesinger]

Is there a mortgage outstanding?

[Maureen]

No.

[Jill Schlesinger]

And the second home, is it also in. Is it in New York State or is it somewhere warm?

[Maureen]

No, it's down south. Yeah.

[Jill Schlesinger]

How much is that worth?

[Maureen]

582. And I owe about 270 on that with a 2.875 interest rate.

[Jill Schlesinger]

Is that something you want to hang on to? I know you said you don't want to rent it anymore, but do you want to spend more time there?

[Maureen]

Yeah, I think I do.

[Jill Schlesinger]

Okay.

[Maureen]

I think. I think I want to go warm.

[Jill Schlesinger]

Okay, I hear you. And if you were to do that, would you sell your primary or would you keep both?

[Maureen]

I wouldn't keep both forever, but I do have some commitments here, and so I feel like I might bounce back and forth a little bit, at least.

[Jill Schlesinger]

For a couple years.

[Maureen]

Yeah. Okay. Not forever.

[Jill Schlesinger]

Okay. Maureen, critical question. You ready for it?

[Maureen]

Sure.

[Jill Schlesinger]

How much you spend, you big saver, you?

[Maureen]

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.

[Jill Schlesinger]

There's no way you spend 10, but. Okay, let's do 10. Let's do 10 anyway, because what are we going to do about health insurance if you retire this year?

[Maureen]

So I'll have to buy it privately.

[Jill Schlesinger]

Okay. So 10's probably. Let's use 10. That's okay. Okay. Are you collecting beneficiary for Social Security? Are you collecting anything yet?

[Maureen]

I don't think I'm allowed to until I'm 60.

[Jill Schlesinger]

Okay. Do you know what that number would be?

[Maureen]

It's going to be about 2,000.

[Jill Schlesinger]

And then your full Social Security benefit. When will that. What. What does that look like? And when do you plan to kick? Take it.

[Maureen]

The. The. At 62 is 28. At 67 is 39. And at 70, it's 49 almost.

[Jill Schlesinger]

Mark, how are you feeling about Maureen's desire to retire right now? And wait, wait. When you retire, Maureen, would you make $0? Is that what you want us to bank on? Or would you make some amount of money that we should throw in here just as a hold?

[Maureen]

I mean, honestly, I don't see. I think I'm too young not to do something, but I really am looking for some time, freedom. So it might take me a while to find something that gives me that freedom, but I'm not opposed to work.

[Jill Schlesinger]

Okay, Mark, now what do you think? Let's say no. Let's just pretend Maureen's like, I'm going to give of my time and not get paid. Could she potentially call it quits here in the year 2025?

[Maureen]

Yeah, I don't think you're going to be the dream crusher today, Jill.

[Jill Schlesinger]

I know, it's so sad. I mean, I. No, I'm just kidding. So here you. You said, like, can you invoke the rule of 55? It would appear that you could from your 401k. Okay.

[Maureen]

I was going to say you've checked with the employer.

[Jill Schlesinger]

That's what you have to check with them first.

[Maureen]

Yes.

[Jill Schlesinger]

And they say yes, they're good.

[Maureen]

They are good with that.

[Jill Schlesinger]

Okay, then you can. What you can't do is you can't do with the inherited ira. The. You know what I mean? Like, so what I think the game plan would be is to treat that $1.4 million as almost like your deferred income, which is exactly kind of what it is in the first place. Right? Because it's a retirement contribution. You're deferring a piece of your salary in the future. Say you have it for retirement. We now need to turn this account into your payroll service, basically.

[Maureen]

Okay.

[Jill Schlesinger]

Gotta get you to have, let's say, 100, $120,000 a year coming out. Maybe we just do the exact same thing. Maybe we say, well, you're making 109,000 now. Maybe starting next year you give your notice. Let's say for you, work through the end of this year, and then you say, okay, I'm going to just take the same $110,000 a year out from my retirement account from my traditional 401. You'll still be in the 22% bracket, basically, and you're going to just do that every year. And what you'll do is you will pay yourself with your own money, and you'll be able to do that probably pretty close to when you get to your age 67. I mean, you will get that little bit of relief from the Social Security when, you know, in five years from the beneficiary part of it. But I think that's gonna mostly cover your needs. It really should. You know, listen, you could take other money out. You could certainly take money out of your. You'll have to do the small inherited ira, so maybe that'll pop out some point. And then your inherited ira, you could always top off a little bit. If you run out at the end, you can let that run. But it seems to me you're in very good shape, because at 67, you get your. And maybe 70. Do you have good health yourself and good genes in the family?

[Maureen]

Yes, so far, so good. The genes tend to run a little rough after 75.

[Jill Schlesinger]

All right, so maybe we take 67, and then you don't need to pull as much out of the inherited IRA at that point, and you really look like you're in good shape. I agree with you. I would not make a huge change between the two homes. I would try to. You know, you're still in this early stage. I know it's only, you know, it's four years, but to be solo and maintain both homes might be a little bit more than you want in the future. It's okay. One of them will be sold. You can use that to supplement. But you're in great shape. If you're in a place for 31 years and you've sort of seen it from good to bad, I'm sort of like, why do this? You've been through enough tragedy in your life.

[Maureen]

Yeah, isn't it?

[Jill Schlesinger]

Aren't you. Aren't you entitled to do this?

[Maureen]

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.

[Jill Schlesinger]

I think it is. Now, are you managing all of the money yourself, or do you have someone who's helping you out?

[Maureen]

I go through fidelity, and I do speak to a gentleman there. As far as. That was one of my questions. Just to kind of run by you how they're currently invested. So the. The 401k is currently in a Vanguard 50 fix 50 mix. The 1.4 perfect.

[Jill Schlesinger]

Easy.

[Maureen]

Then with the. My husband's IRA, I have that in a more aggressive growth as an 8030.

[Jill Schlesinger]

8030. Since when do you get 110%? Come on. You mean 70 30, right?

[Maureen]

Seven. Oh, hello.

[Jill Schlesinger]

You don't get an extra 10%. Just.

[Maureen]

Yeah, exactly.

[Jill Schlesinger]

So 7030.

[Maureen]

7030.

[Jill Schlesinger]

Are you okay with that? Like in the. You know, as the market has been turbulent. Is that making you a little freaky? Are you okay with that?

[Maureen]

I feel like I'm okay. I've been through, you know, 2008 and Covid and I know things.

[Jill Schlesinger]

I don't think. And I don't think you're going to touch that for at least 10 years.

[Maureen]

Right.

[Jill Schlesinger]

So I'm okay with it if you're okay with it. I'm a whip. I'm more of a 60, 40 kind of gal, but.

[Maureen]

Okay.

[Jill Schlesinger]

But that's me. That doesn't mean that's you.

[Maureen]

Okay.

[Jill Schlesinger]

So. Okay, I'm fine with that.

[Maureen]

And then the Roth I'm pretty bold with at a hundred percent stock.

[Jill Schlesinger]

Come on. You're crazy. I mean, that's the one I'm going.

[Maureen]

To be touching last, though.

[Jill Schlesinger]

It's true, but I. I have no stomach for that.

[Maureen]

And then.

[Jill Schlesinger]

Wait a second. Mark, are you 100 in any of your accounts?

[Maureen]

No, no.

[Jill Schlesinger]

Mark's younger than us. Maureen.

[Maureen]

I'll take that. Only. The only thing I'm 100 in is Theo's 529, and that's until he's 12.

[Jill Schlesinger]

All right, fair enough.

[Maureen]

I'll. I'll take that then. And. And do something. And then the inherited is just. Is what, 6535? Just because I got to get rid of that in 10 years. So.

[Jill Schlesinger]

Yep. I'm just the inherited. The small inherited.

[Maureen]

Yes.

[Jill Schlesinger]

Okay. I got nervous. Okay. Yeah. I mean, just. You can take a little bit out at a time so you can, like, keep your tax brackets. You know, you have to see what happens for you. But I think that's perfect. And then that brokerage account. What's in that brokerage account?

[Maureen]

It's all stocks. Individual stocks.

[Jill Schlesinger]

Cool. All right. So that's your Fun Money account.

[Maureen]

Yeah.

[Jill Schlesinger]

Not counting that, but I presume at some point you're going to have three or four hundred grand. That is coming from the sale of real estate. I really do.

[Maureen]

Right.

[Jill Schlesinger]

Yes. I don't know when that'll happen. But I think you're in very good shape, Maureen. I really do. Do your own estate because you don't have natural heirs. Do you have your estate docs done?

[Maureen]

I do. I do. We had a living trust done, you know, and my husband was alive and, you know, so I have all the beneficiaries set up and things like that.

[Jill Schlesinger]

Great. Fantastic. Well, listen, I am just so sorry you had to go through that with your husband. It's, it's just awful. I'm so sorry. And I know you know, it, it's something to, to kind of get to your, your mid-50s and you thought you were going to be in a different place. I'm sure if I asked you 15 years ago what you thought were you were going to be doing when you're 55, it's very different answer. Absolutely. So I'm very, very glad that you got in touch with us. Life does deliver some horrible and wonderful things. So here's your wonderful thing for today. Go ahead and think about giving your notice at the end of the year and get yourself together and enjoy what comes next. It's going to be a fun next chapter for you. So thanks for getting in touch with us, Maureen.

[Maureen]

Thank you both so much. I really appreciate it.

[Jill Schlesinger]

All right. If you're like Maureen and you're just unhappy, you could have been a very happy person five, 10, 20 years ago. But now it's not so much fun. Why don't you get in touch with us? Go to jillonmoney.com, click the contact us button. Write us a note. Let us know if you want to come on the air by checking the box while you're on the website. Don't forget to sign up for the free weekly newsletter and you can subscribe to us here on the Odyssey app or wherever you find your favorite podcast. Don't forget to do something nice for someone else today. Please do that. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

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[Courtney Harrell]

Ask someone anything you wanted about their finances. How much do you make? Who paid for that fancy dinner? What did your house actually cost? On every episode of what We Spend, a different guest opens up their wallets, opens up their lives, really, and tells us all about their finances. For one week, they tell us everything they spend their money on.

[Maureen]

My son slammed like $6 for the.

[Jill Schlesinger]

Blueberries in five minutes.

[Courtney Harrell]

This is a podcast about all the ways money comes into our lives and then leaves again. Which, of course, we all have a lot of feelings about.

[Jill Schlesinger]

I really want these things.

[Maureen]

I want to own a house.

[Jill Schlesinger]

I want to have a child. But this morning I really wanted a coffee.

[Courtney Harrell]

Because whatever you are buying or not buying or saving or spending, at the end of the day, money is always about more than your balance. I'm Courtney Harrell and this is what We Spend. Listen to and follow what We Spend and Odyssey Original podcast available now wherever you get your podcasts.