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Six and a Half Ways to Bridge the Early Retirement Gap to Age 59 and a Half

Fire Pit

If you’ve been piling money into your retirement accounts, maxing out every tax-advantaged option available, and spending what’s left over, you’re likely to end up in good financial shape.

There’s a problem, though. A lot of that money is not easily accessible, especially for the would-be early retiree.

How do you bridge that gap if you plan to stop working in your fourth, fifth, or sixth decade of life? Dr. James Turner has some answers. Six and a half of them, to be exact.

We recently discussed the epochs of early retirement, and today’s Saturday Selection takes a deep dive into that first epoch. This post was originally published at The Physician Philosopher.


Six and a Half Ways to Bridge the Early Retirement Gap to Age 59 and a Half


We love talking about FIRE (Financial Independence and Retire Early).  “I cannot wait to be able to do what I want, when I want. Every. Single. Day!”  What we don’t spend as much time talking about is the inherent early retirement gap that is created when we FIRE.

What is the early retirement gap?  It is the time between when you FIRE and when you turn age 59.5 and can access your traditional retirement funds.  At age 59.5, you’re likely on dry land as you can now access your 401K, 403B, and IRA from all those years of work without getting slapped with a 10% penalty for early withdrawal (though there are ways to avoid that).


Basics: What’s the problem?


When we make all of our brilliant plans for early retirement, we often think about the freedom it will provide.  Sometimes, however, we fail to think about the specifics.

Most people will use “the 25X rule” to determine how much is enough to retire, though I follow a hybrid model of financial independence.  For the math purists,  if your annual expenses come out to $100,000 post tax each year then you likely need $2.5 million to be financially independent.

If you plan to retire early, you may want to be more conservative (though this is debated) and multiple your annual expenses by 30, or $3 million in this example.  Then you could draw down 3.33% of this nest egg each year to provide you $100,000.  That is likely to last a very long time based on the Trinity Study even for an early retiree.

However, this math gets a bit dodgy when the majority of our savings is stuck inside a retirement account that we cannot use (e.g. our 401K or 403B) until age 59.5 lest we receive a 10% penalty on anything we take out.


The problem is this: 
How do we bridge the gap from early retirement to age 59.5?


Fire Pit


Before we get to the nitty gritty, don’t forget about the exceptions to the 59.5 rule (here is a post by Physician on FIRE that lists them, if you are curious).

There are certainly ways to retire early and to have the income we need to do so, but we need to make a plan.  Here are 6.5 of the best ways to have the money you need to retire early.



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Number 1: Cash Reserve


A lot of early retirees advocate for having a year or two of annual expenses saved up in  cash reserves.  There are two major advantages to this tactic.

First, if you don’t touch your investments for the first two years you retire, you can let your investments grow without having to worry about Sequence of Return Risk.  This is a great way to make sure that you truly have enough in retirement.

The second reason is that it is the easiest way to bridge the early retirement gap!  There is no penalty on money that is sitting inside a high-yield savings account.  Use it as you will.


Number 2: The Taxable Account


Another source of money to bridge your early retirement gap is your taxable account.

This is likely the first account that you should draw down in retirement.  It has the least tax benefit and has the most flexibility in terms of access.  You simply take the money out that you put in, and pay your long-term capital gains taxes (held for more than one year).  These taxes, which are usually 15-20%, are often substantially less than what you were paying in your peak earning years.



In fact, one reason I created this post is that I’ve read that some people actually stop putting money into their 401K/403B and, instead, put it into a taxable account so that they can access it more easily.  They think this is the only option in early retirement.

As you’ll read below, this is not the case!


Number 3: Partial FIRE


One of the least complicated ways to have enough money in early retirement is to have income from work.  I hear you saying, “Wait a minute! I thought we were talking about retirement.

This is true, but let me give you an example.  My main gig is working as an anesthesiologist.  However, that is not the only way that I make money.  For example, The Physician Philosopher blog makes money, too.

Here are two ways I can partial FIRE.

First, I can take a step back to 0.5 FTE (Full-time equivalent) or 0.7 FTE.  Part time work can help me find the ideal work-life balance.  It would provide time for me to do things I want to while still earning access to retirement accounts, health care benefits, etc.

Second, I could also consider working on other things that bring me joy, but aren’t my main gig.  Say I retire early and devote more time to this website or to real estate or creating inventions.  There are many examples of physician side hustles. All of these may take up less time than a full-time job, provide income, and allow you to still have an active retirement.

Humans are meant to be productive one way or another. This is why the people that retire well still have passions that they pursue.    Playing golf every day is going to get old after a while (though right now that’s hard to imagine).

You need something to do when you are bridging that early retirement gap.  Hopefully, it can also make a little money for you.


Number 4:  Access your 457 in early retirement


One of the most common questions I get from my new colleagues is about 457 plans.  I’ve written a post about everything you need to know about investing in a 457 plan previously.

The one thing I will say that 457’s are definitely useful for (if they have good investment and distribution options) is early retirement.  Unlike your other retirement accounts, you can access the deferred compensation 457 as soon as you leave your employer.  You’ll, of course, pay taxes on what you deferred… but that’s fine.  At least you aren’t getting slapped with the 10% penalty.

I am not currently contributing to my employer’s 457.  However, they have good distribution options, including the option to receive the money over a fixed period of years (2-30 years).

This is perfect for early retirement.

I could subtract my current age from 59.5 and stretch my 457 until I can access my 401K/403B.   Ideally, I would be in a lower tax bracket in early retirement than I was in my peak earning years. So, this could provide a great benefit without getting hit by the 10% penalty.

Or I could take it out over a shorter period of 5-10 years to avoid getting hit with high taxes while I perform a Roth Ladder Conversion on my 401K (see below).  Also, a shorter time period means I don’t have to worry about the financial stability of my institution longer than necessary once I am gone and have no idea how it’s doing.  Remember, the 457 is considered owned by the employer and is available to creditors if your employer falls on bad financial times.


Number 5.  Roth Ladder Conversions


Using a Roth Ladder conversion is a really good strategy to bridge the early retirement gap.  Particularly, in early (full) retirement so long as you can keep your taxable income low enough to take part.

The basics involve rolling over your 401K/403B into an IRA upon leaving your employer.  (I believe that this must be done within 60 days of leaving most employers).  You then take your money out of the Traditional IRA and convert it (i.e. you get taxed) to a Roth IRA.  You can then take your money out of the Roth IRA tax and penalty free.  There’s a catch, though.

The key is you have to wait 5 years to access that money!  So, you still need five years of money saved up in early retirement (likely from numbers 1-4 above) to get you through the five years until you can access the money you have laddered.

If you want to read more about Roth Ladder Conversions you can check out the articles written by Big Law InvestorMoney Under 30, and Route to Retire.



Number 6.  Substantially Equal Periodic Payments


I have talked about SEPP options to avoid the 10% 401K/403B penalty before.  However, it is an option that you have to access money in early retirement before age 59.5

The IRS states that if you take payments “as part of a series of substantially equal periodic payments beginning after separation from service” that you can avoid the 10% penalty.  The stipulations are the following:

  • The payments must be “substantially equal” and occur after leaving your employer.
  • They must not be altered or stopped for five years after payments begin or 59.5 (whichever is later).
  • You must determine your payment in one of three ways:  By calculating RMD’s for your age, using it as an annuity, or via amortization.

The gist is that you can arrange for equal payments to occur for you from your 401K/403B for five years or until age 59.5 (whichever happens later).  This can provide some money if you need some not covered by the four above.


Number 6.5: Take Roth Contributions Out


This one isn’t a full number for a reason.  You can choose to take any Roth contributions out tax-free.  However, this has two problems.

One, you have to determine the proportion of which is your (non-taxable/penalty free) contribution and what is growth.  So, if you want to take out $10,000 and $9,000 of this is the contribution (not taxed/penalized) the remaining $1,000 will be taxed and possibly be assessed a 10% penalty if accessed early.  This starts to get complicated.  Particularly, if you made a backdoor Roth IRA conversion.

Second, you should be accessing your Roth money last as this is money that is best left as a stretch Roth IRA inheritance and also has the biggest tax benefit.  You’ve already paid the tax.  Let it grow tax-free and take it out tax-free later.

I mention this because it is, technically, an option.  Just not one that I would not choose lightly.


Take Home


Retiring early can seem like it is all fun in the sun, but there are some details that must be worked out first.  Chief among them is how you plan to access all of that money you have saved away for the impending early retirement gap.

If you want more information on this subject, you can also check out posts by others who have blogged about the topic:




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What are your thoughts?  Do you plan on retiring early?  Have you already done so?  What was your plan to fill the gap prior to age 59.5?  Leave a comment below.

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14 thoughts on “Six and a Half Ways to Bridge the Early Retirement Gap to Age 59 and a Half”

  1. A nice tax minimization technique if receiving unexpected income (or as an alternative to raiding the roth IRA for tax-free income) is to use a low interest margin loan on a taxable account in lieu of generating a taxable event(s), then pay the loan off by realizing the gains in a lower-revenue year.

    Essentially an arbitrage play – rather than pay 15% or more in taxes, one can pay ~3.41% at today’s margin rates. Plus, the margin interest may be deductible.

  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. We’re using this combo – cash, partial FIRE, and Roth IRA ladder.
    Time really flies. Suddenly I’m 45 and I’m sure a decade will fly by quickly.
    Oh, I have a solo 401k. Maybe I could stop working completely at 55 and withdraw from there.

  4. I see my non-governmental 457 as my “severance.”

    Whenever my employer and I part ways -for any reason- I will have a couple of years of living expenses available. I put the money in at my highest marginal tax rate deduction but will pay the smallest marginal tax rates coming out.

    Health insurance is by far THE obstacle to early retirement for many Americans. It isn’t the only reason I work, but it is a factor for sure.

  5. Great article! A couple of things to add:
    1). “The basics involve converting your 401K/403B into a taxable IRA upon leaving your employer. (I believe that this must be done within 60 days of leaving most employers).”
    Nope… no time limit, at least for 401ks. I just transferred an old 401k into a Trad IRA 11 years after leaving the prior employer.
    2). For those planning RE during the calendar year he/she turns 55: 401k money at that employer is available immediately; no penalty but still pay income tax. (Not sure about 403b.) In this instance, DON’T transfer the money needed between 55&59.5 to an IRA.

  6. A nice lineup of options!

    I’m surprised I don’t see more mentions of the “rule of 55” for 401k/403b plans. I’ve been consuming FIRE blogs for four years now, and had never heard of it until last week (on PoF actually). Granted, 55 is probably considered a bit “old” in the realm of FIRE, but it still seems like it offers some additional options for those trying to bridge the gap between ages 55 and 59.5.

    Oh, and pretty sure in the second paragraph of #5 you mean “traditional IRA” and not “taxable IRA.”

    • Good point on leaving an employer at 55. I covered this in the Epochs of Early Retirement post recently.

      I changed the wording in that sentence. It’s not necessarily wrong to call it a taxable IRA, as you will pay taxes on the withdrawals, but the more common nomenclature would be “traditional” or “tax-deferred.” Also, it’s not a conversion, but a rollover, so I clarified that.


      • I’m planning on using the Rule of 55 for about a year; one thing that briefly gave me indigestion is that I read it’s up to the discretion of your former employer whether they comply with this or not, but mine is one that does.

        • Interesting. Probably depends on how “custom” the 401k/403b plan gets written up between the employer and their custodian.

          I guess a hypothetical option for people would be to find an employer that is known to a) comply with the rule of 55 and b) allow rollovers into their 401k, then get a job with them for some period of time and leave it in the year they turn 55. One could roll over enough into the 401k to last them 4-5 years and leave the rest in a tIRA to allow for Roth conversions.

      • Yep, that’s the very article in which I first heard about the rule of 55. In fact it’s still open in the browser tab next to this one. 😉

  7. My “retirement” won’t be till age 70. There is a new bill wending its way through congress called the SECURE act which may change RMD age to 72. So I exist in an epoch that occupies 59 to 70 (or 72). During this period I specifically left work so I could Roth convert at least some of my TIRA and get those taxes out of the way. You think you own your pretax accounts but you do not. The government has a claim on that money and the power to force you to spend it in a way that generates tax revenue according to their schedule. If you planned on living on 3%/yr. once you hit RMD the government will demand you extract 3.56%. By the 10th year into RMD you will be pulling out 5+%/yr and by the 20th year >8%/yr so it behooves you to reduce the size of the TIRA and get it into a Roth ASAP. The transfer and taxes paid satisfies the government’s claim on your money and Roth money is owned by you free and clear which makes it very valuable. The problem is TIRA money comes out as ordinary income taxed according to tax brackets. If your in the 12% bracket You can take post tax money out of the brokerage at 0% cap gain. Hit the 22% bracket and cap gain tax goes to 15% so you pay a higher marginal rate AND a higher cap gain rate. Despite the “fair share” rhetoric The tax code is favored to soak the rich especially the middle class rich where the progression occurs. Once you become very rich your taxes level off to a single high marginal rate and every additional dollar above that gets taxed at that constant marginal rate. Why is this important? Because before RMD You have some control over your tax bill. After RMD the government controls your tax bill and the code is written to satisfy their need not your need. It is the Faustian bargain you make when you “MAX OUT YOUR PRE TAX”. You give up the ability to control your taxes on the back end.

    Yea, yea, bla bla bla how does that affect my living before age 59? It’s in those pre 59 years you must make provisions for effective Roth conversion during the 50-70 (or 72) epoch. If you do this pre 59 epoch wrong you will pay more taxes than need be, good for the government bad for you.

    What you need is a way to live on cash during conversion such that the only income to pay taxes on is on the conversion money. If you have cash, that is the bottom line best most tax efficient way to convert. My conversion is slated to last 5 years but may extend to 7 years for an even greater overall tax saving. My goal at RMD s to max out SS , have a fixed amount Roth converted and a small TIRA which I can RMD but kicks off only a small amount like 20K/yr. Small RMD plus SS keeps you in the 12% bracket for a long time further minimizing your taxes for that long time. My conversion living expense came from my taxable account. I simply sold enough stock o generate 5 years of living expense plus projected conversion taxes. This plan required a hefty brokerage account and some tax loss harvest along the way. I had enough tax loss harvest to pay the entire cap gains on 5 years of living expense do not miss this point. The combination of tax loss harvest plus brokerage amounts to a “Roth equivalent” account pre age 59 and can be used by you according to your need. BUT BUT BUT if you don’t have a sizable brokerage and some tax loss harvested this scheme won’t work. I stopped contributing to pre-tax accounts at age 50 and heavily invested in my brokerage while I was working. The TIRA continues to compound but I had plenty of money so I could interface effectively with the age 59 epoch. That is the whole point of epochs to link them in a way where the transition in life from work to retirement is smooth and predictable. You have to know and plan for “what comes next” one or two epochs in advance and if you don’t the government has a plan for your co-mingled money. If SECURE is passed it will eliminate stretch IRA including Roth and your heirs beyond your wife could get hit with big tax bills

  8. I’m using the SEPP method as well as #7, owning rental property that kicks off cash flow. In fact, the cash flow from my rental properties is greater than my expenses. I didn’t need the SEPP but took it as a precaution in case I decided to spend more. It is nice to know that as I am spending two months in Europe now, my rental properties continue to pay the bills. That’s a nice passive income to get me to age 60 when my SEPP payments will stop as I can then take whatever I want as needed. I retired/repurposed at age 54.

    Dr. Cory S. Fawcett
    Prescription for Financial Success

  9. I love the idea of partial FIRE. People are meant to be productive and if you have built up a career in a field you probably like that field.

    The issue I run into – which I’m still working through – is I think working 1 day a week leaves your brain at work for more than 1 day. Its not the end of the world but I’m trying to figure out if there is a better way to use my brain space.

    • I love the idea, too, and that is exactly what I plan to do. In fact, even early in my career I’ll probably go part time and try and get to the point where I can work 3 days per week. Itll extend my career, lessen my burnout, and provide some freedom to do the things I want with the time I get in return.

      Partial FIRE will be a natural extension of this.



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