{"id":181088,"date":"2025-02-14T16:37:00","date_gmt":"2025-02-14T23:37:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=181088"},"modified":"2025-02-18T09:49:23","modified_gmt":"2025-02-18T16:49:23","slug":"q-and-a-how-this-near-millionaire-can-enjoy-their-wealth-sooner","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/q-and-a-how-this-near-millionaire-can-enjoy-their-wealth-sooner","title":{"rendered":"Q&#038;A: How Someone Who&#8217;s Nearly a Millionaire Can Enjoy the Benefits of Their Portfolio Sooner"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Below is an email transcript from a BiggerPockets Money listener who sent me a message about their personal financial situation and wanted my insights. We&#8217;ve used AI to edit the email&#8217;s content to be more readable in an article format and remove sensitive personal information from the sender to protect their privacy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Sender&#8217;s Message<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Scott,<\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I recently listened to <a href=\"https:\/\/www.youtube.com\/watch?v=CZ-BNBjziFk\" target=\"_blank\" rel=\"noopener\">Episode #602 of your podcast<\/a> on the \u201c<\/span><span data-preserver-spaces=\"true\">Middle-Class<\/span><span data-preserver-spaces=\"true\"> Trap,\u201d <\/span><span data-preserver-spaces=\"true\">and<\/span><span data-preserver-spaces=\"true\"> I related to it more than I expected. I wanted to reach out because I <\/span><span data-preserver-spaces=\"true\">find myself<\/span><span data-preserver-spaces=\"true\"> in a unique financial situation and would appreciate your insights on optimizing my path to financial independence.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Background<\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I\u2019m 54 years old, single, and child-free, with a net worth of $937,000. My assets <\/span><span data-preserver-spaces=\"true\">are allocated<\/span><span data-preserver-spaces=\"true\"> as follows:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Pre-tax retirement accounts (including a 457b):<\/span><\/strong><span data-preserver-spaces=\"true\"> $788,000<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Roth accounts:<\/span><\/strong><span data-preserver-spaces=\"true\"> $96,000<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Taxable brokerage (dividend stocks &amp; ETFs):<\/span><\/strong><span data-preserver-spaces=\"true\"> $11,000<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Savings bonds:<\/span><\/strong><span data-preserver-spaces=\"true\"> $11,000<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Cash (CDs, savings, money market, checking):<\/span><\/strong><span data-preserver-spaces=\"true\"> $31,000<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I worked in Northern California for over 25 years but left in 2022, disenchanted with the cost of living and overall quality of life. I took a year off to travel, staying with friends and family and occasionally in short-term rentals.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">While I initially hoped to retire permanently, I quickly realized I wasn\u2019t <\/span><span data-preserver-spaces=\"true\">quite<\/span><span data-preserver-spaces=\"true\"> financially independent. Since spring 2023, I\u2019ve been working in retail, earning $31,000 annually, and currently live rent-free with a family member in Pennsylvania, allowing me to save approximately 50% of my income.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">In August 2025, I will <\/span><span data-preserver-spaces=\"true\">begin receiving<\/span><span data-preserver-spaces=\"true\"> a $36,000 annual pension, <\/span><span data-preserver-spaces=\"true\">which will significantly improve<\/span><span data-preserver-spaces=\"true\"> my financial flexibility.<\/span><span data-preserver-spaces=\"true\"> However, I am still navigating the most tax-efficient way to supplement this income while achieving my desired lifestyle.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">My Financial Independence Goals<\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I would like to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Maintain an annual income of at least $84,000 (approximately 5X my anticipated rent of ~$1,200\/month).<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Move into my <\/span><span data-preserver-spaces=\"true\">own<\/span><span data-preserver-spaces=\"true\"> apartment once my pension begins while maintaining financial security.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Incorporate slow travel (monthlong stays in different locations) into my lifestyle.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Support a close friend in financial hardship, as I <\/span><span data-preserver-spaces=\"true\">have the means to<\/span><span data-preserver-spaces=\"true\"> assist in a limited capacity.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Key Challenges &amp; Considerations<\/span><\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">457b withdrawal withholding:<\/span><\/strong><span data-preserver-spaces=\"true\"> While I can withdraw from my 457b without penalty, I was caught off guard by the mandatory 20% withholding on distributions. I understand that I can reclaim overpayments at tax time, but this limits my ability to access the funds efficiently throughout the year.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Bridge to 59\u00bd:<\/span><\/strong><span data-preserver-spaces=\"true\"> I want to optimize my cash flow so I don\u2019t have to rely on my retirement accounts too early or deal with restrictive tax strategies like Rule 72(t), which I find too rigid.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Long-term sustainability:<\/span><\/strong><span data-preserver-spaces=\"true\"> I recognize that my pension alone isn\u2019t enough to meet my income goals, so I need a tax-efficient <\/span><span data-preserver-spaces=\"true\">strategy for supplementing it<\/span><span data-preserver-spaces=\"true\">.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Potential Paths Forward<\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Here are some options I\u2019m considering:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Increase taxable savings by continuing to work and saving aggressively, allowing <\/span><span data-preserver-spaces=\"true\">for<\/span><span data-preserver-spaces=\"true\"> easier access to funds before 59\u00bd.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Roll my 457b into an IRA and implement a Rule 72(t) <\/span><span data-preserver-spaces=\"true\">strategy,<\/span><span data-preserver-spaces=\"true\"> despite its rigidity.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Continue working at least part-time after my pension begins, either at my current job or seasonally.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Delay moving into my <\/span><span data-preserver-spaces=\"true\">own<\/span><span data-preserver-spaces=\"true\"> apartment for an extra year to bolster my taxable savings.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Withdraw slightly more than the 4% rule suggests in the early <\/span><span data-preserver-spaces=\"true\">years of retirement<\/span><span data-preserver-spaces=\"true\"> and adjust spending later if needed.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Leverage seasonal or short-term work (such as holiday retail jobs) to fill income gaps.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I would love to hear your thoughts on <\/span><span data-preserver-spaces=\"true\">the best way<\/span><span data-preserver-spaces=\"true\"> to structure my withdrawals and income flow while maintaining flexibility and avoiding unnecessary taxes. If there are strategies I haven\u2019t considered, I\u2019d appreciate your insights.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Thank you for your time, and I appreciate any advice you can offer!<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Best regards,<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Scott\u2019s Reply<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Thanks for reaching out, and congratulations on building an (almost) $1 million net worth <\/span><em><span data-preserver-spaces=\"true\">and <\/span><\/em><span data-preserver-spaces=\"true\">the pension. As you noted in your email, that is like having another $900K saved in terms of the purchasing power an inflation-adjusted pension plan can afford you.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Here are some of my instinctive reactions for you:&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Your $84K\/year spending\/income goal does not seem reasonable: You list a goal of realizing\/spending $84K per year (5X $1200 monthly rent). Currently, you earn $31,000. Your peak income in 2021 was $61,000. Why do you want to suddenly spend $84K per year? <\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If that\u2019s <\/span><span data-preserver-spaces=\"true\">really<\/span><span data-preserver-spaces=\"true\"> the goal, then<\/span><span data-preserver-spaces=\"true\"> I\u2019d push you to get a second job or moonlight, make an aggressive real estate play and\/or house hack, and assume you are still at least five to 10 years from your goal.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I don\u2019t think that\u2019s your reality, and I\u2019d encourage you to really think long and hard about why you chose that $84K number. I don\u2019t think you need that much.\u00a0<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I\u2019d wonder, instead, if your number is much closer to $50K or less, and the game <\/span><span data-preserver-spaces=\"true\">is already won<\/span><span data-preserver-spaces=\"true\">, even if you decide to allocate a portion of that to your friend\u2019s situation.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">I\u2019d push back and encourage you to consider NOT moving out now. In your situation, why not do the \u201cslow travel\u201d thing starting in August? You have no housing <\/span><span data-preserver-spaces=\"true\">expense<\/span><span data-preserver-spaces=\"true\"> now. You want to travel for a month at a time.&nbsp;<\/span><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Why inject a $1,200-per-month drag on your expenses when you have the advantage of not having to do that? If you simply keep your permanent address at your family member&#8217;s house for another year or two, you could potentially spend seven to 10 months traveling, really kicking off your retirement in style when the pension kicks in.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Once you are done with the slow travel, then, of course, I completely understand the desire to move into a solo apartment.<\/span><strong> <\/strong><span data-preserver-spaces=\"true\">But I think that signing a lease immediately prior to doing monthlong stays in exotic locations makes little sense to me in your situation.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><span data-preserver-spaces=\"true\">Can the decision to withdraw from the 457 wait until 2026, making the challenge of \u201cbridging\u201d to age 59.5 much easier? You asked about a bridge to 59 1\/2. <\/span><span data-preserver-spaces=\"true\">I think that this bridge will be far less than you anticipate and that you can postpone <\/span><span data-preserver-spaces=\"true\">having to bridge<\/span><span data-preserver-spaces=\"true\"> any of that access for perhaps the first year following <\/span><span data-preserver-spaces=\"true\">the payout of your pension<\/span><span data-preserver-spaces=\"true\">.<\/span> <\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For example, I think that there is a reasonable probability of the following happening:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">You work hard for 2025 through August and the beginnings of your pension.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You may even do some side hustles or moonlighting to pick up a few extra hours, knowing that the game is almost over and retirement is right around the corner.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You stockpile all this extra cash <\/span><span data-preserver-spaces=\"true\">you accumulate<\/span><span data-preserver-spaces=\"true\"> in 2025 into your savings account.&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You begin the \u201cslow travel\u201d year with $65,000+ in your savings account AND $3K per month in pension income.&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You <\/span><span data-preserver-spaces=\"true\">have no need<\/span><span data-preserver-spaces=\"true\"> to touch the money in your 457 until a year has passed, you have traveled to several interesting places, and you have finally decided where <\/span><span data-preserver-spaces=\"true\">you want<\/span><span data-preserver-spaces=\"true\"> to settle down\/rent long-term.&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">You may <\/span><span data-preserver-spaces=\"true\">even<\/span><span data-preserver-spaces=\"true\"> find the ability to make a few thousand dollars per year, during your travels or in your retirement, in a highly agreeable way to incrementally defray\/defer the need to access money in the retirement portfolio.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">From there, you will have a <\/span><span data-preserver-spaces=\"true\">much<\/span> <span data-preserver-spaces=\"true\">clearer<\/span><span data-preserver-spaces=\"true\"> line of sight (and likely need a smaller bridge) into how much you need to pull from the retirement accounts to supplement your income and bridge to traditional retirement.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Below is an email transcript from a BiggerPockets Money listener who sent me a message about their personal financial situation and wanted my insights. We&#8217;ve used AI to edit the [&hellip;]<\/p>\n","protected":false},"author":1676,"featured_media":181091,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7398],"tags":[],"class_list":["post-181088","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-retirement"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/181088","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1676"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=181088"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/181088\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/181091"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=181088"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=181088"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=181088"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}