For those that retire before age 59.5, there's no one size fits all when it comes to generating income. Each person has different variables such as health insurance premiums, expenses, tax situation, and retirement accounts. With that being said, I wanted to provide a framework for supplementing income for those that retire before age 59.5. This can be a good place to start.
1) Checking and savings accounts.
2) Taxable brokerage accounts.
- 100% liquid but you pay tax on capital gains and dividends.
3) 457(b) accounts.
- These avoid the 10% early withdrawal penalty.
4) Traditional IRAs or 401(k)s.
- Use Substantially Equal Periodic Payment (SEPP) distributions for IRAs.
- Use rule of 55 for 401(k)s.
5) Roth conversions after your income need is met.
- Move pre-tax assets into a tax-free bucket.
- Tax ramifications must be considered!
6) Health savings accounts (HSAs).
- Tax-free distributions as reimbursement for medical expenses.
7) Roth IRAs or Roth 401(k)s.
- This should be the last bucket you access.
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