Aaron Charles Gregg

How Much Is the Required Minimum Distribution from Retirement Accounts?

“Americans are living longer than they were a generation ago, and the government knows it. Starting in 2022, that will be reflected in the amount of money you have to draw from retirement accounts at different ages.”

The IRS has updated the formulas for Required Minimum Distributions, or RMDs, the amounts required to be taken annually from 401(k)s, 403(b)s, or traditional Individual Retirement Accounts (IRAs) in 2022. According to a recent article from AARP titled “How an IRS Rule Update Impacts Required Minimum Distributions,” the new RMDs will be smaller now than in previous years. RMDs have always been a complicated topic, and now they might just be a little more so.

Getting the calculations right has always been a bit of a muddle. For one thing, in 2020 RMDs were suspended entirely. Before the pandemic, the 2019 SECURE Act changed the age when you had to take withdrawals from 70½ to 72. This was except for people who were already taking RMDs in 2019. Are you confused?

Now, if your 72^nd birthday occurred before July 1, 2021, you need to take an RMD before December 31. However, if your 72^nd birthday takes place in the second half of 2021, you have until April 1, 2022 to take your first withdrawal—only you’ll need to use the 2021 tables from the IRS to calculate it.

A reminder: Roth IRAs do not require any RMDs, but 401(k) Roths do.

Starting in 2022, many people will be able to take about six or seven percent less in their RMD under the life expectancy tables from the IRS. A 75-year-old single woman with an IRA worth $100,000 at the end of 2021 will need to withdraw at least $4,065 in 2022, about $300 less than under prior guidelines.

However, you need to consider whether or not taking less from your IRA or 401(k) or 403(b) is a good idea in the long run. If you need to take more to live on, then you need to withdraw what you need, regardless of the IRS rules. There’s no penalty for taking more, except the taxes you’ll pay.

If you retire before age 70, before any RMDs are required, you might want to withdraw more from your tax-deferred retirement accounts in order to delay taking Social Security benefits. The longer you delay taking Social Security benefits, the larger your monthly payment will be. This is a good move for many Americans, especially those who are counting on Social Security for income in their 80s and 90s.

There isn’t a single person in America (well, maybe there is one) who isn’t frustrated by having to pay taxes on earned income required to be withdrawn from retirement accounts. However, there are ways to blunt the impact of income taxes on IRAs. Those who are older than 70½ can donate to registered 501(c)(3) charities, by making a Qualified Charitable Distribution (QCD), which is counted toward any RMD as the amount of the donation is exempted from income taxes. However, this only works if you take the standard deduction and don’t itemize charitable gifts.

Unless the rules change, converting tax-deferred IRA money into a Roth IRA is a strategy to shift not whether you pay taxes, but when. Converting traditional IRA assets during a low-income year—or a portion of traditional IRA assets—allows the money in the Roth account to continue to grow tax free and no taxes are due on any withdrawals. Unless the laws change—again.

Reference: AARP (Dec. 8, 2021) “How an IRS Rule Update Impacts Required Minimum Distributions”

How Do I File Taxes on a CARES 401(k) Withdrawal?

“Penalties were waived on 401(k) and IRA withdrawals for coronavirus costs, but you still owe the taxes.”

Several bills were passed by Congress to ease financial challenges for Americans during the pandemic. One of the provisions of the CARES Act was to allow workers to withdraw up to $100,000 from their company sponsored 401(k) plan or IRA account in 2020. This is a big departure from the usual rules, says an article from U.S. News & World Report titled “How to Avoid Taxes on Your CARES Act Retirement Withdrawal.”

Normally, a withdrawal from either of these accounts would incur a 10% early withdrawal penalty, but the CARES Act waives the penalty for 2020. However, income tax still needs to be paid on the withdrawal. There are a few options for delaying or minimizing the resulting tax bill.

Here are three key rules you need to know:

• The penalties on early withdrawals were waived, but not the taxes.
• The taxes may be paid out over a period of three years.
• If the taxes are paid and then the taxpayer is able to put the funds back into the account, they can file an amended tax return.

It’s wise to take advantage of that three-year repayment window. If you can put the money back within that three-year time period, you might be able to avoid paying taxes on it altogether. If you are in a cash crunch, you can take the full amount of time and repay the money next year, or the year after.

For instance, if you took out $30,000, you could repay $10,000 a year for 2020, 2021, and 2022. You could also repay all $30,000 by year three. Any repayment schedule can be used, as long as all of the taxes have been paid or all of the money is returned to your retirement account by the end of the third year period.

If you pay taxes on the withdrawal and return the money to your account later, there is also the option to file an amended tax return, as long as you put the money back into the same account by 2022. The best option, if you can manage it, is to put the money back into your retirement account as soon as possible, so your retirement savings has more time to grow. Eliminating the tax bill and re-building retirement savings is the best of all possible options, if your situation permits it.

If you lost your job or had a steep income reduction, it may be best to take the tax hit in the year that your income tax levels are lower. Let’s say your annual salary is $60,000, but you were furloughed in March and didn’t receive any salary for the rest of the year. It’s likely that you are in a lower income tax bracket. If you took $15,000 from your 401(k), you might need to pay a 12% tax rate, instead of the 22% you might owe in a higher income year.

Reference: U.S. News & World Report (April 23, 2021) “How to Avoid Taxes on Your CARES Act Retirement Withdrawal”

Ignore Retirement Myths

“A comfortable, secure retirement is one of the biggest financial goals you can strive for. Therefore, as you're saving and investing in pursuit of it, it's crucial to separate fact from fiction—otherwise, your plan could go off track.”

While you’re busy planning to retire, chances are good you’ll run into more than a few retirement myths, things that people who otherwise seem sincere and sensible are certain of. However, don’t get waylaid because any one of these retirement myths could do real harm to your plans for an enjoyable retirement. That’s the lesson from a recent article titled “Let’s Leave These 3 Retirement Myths in 2020’s Dust” from Auburn.pub.

You can keep working as long as you want. It’s easy to say this when you are healthy and have a secure job but counting on a delayed retirement strategy leaves you open to many pitfalls. Nearly 40% of current retirees report having retired earlier than planned, according to a study from the Aegon Center for Longevity and Retirement. Job losses and health issues are the reasons most people gave for their change of plans. A mere 15% of those surveyed who left the workplace before they had planned on retiring, said they did so because their finances made it possible.

Decades before you plan to retire, you should have a clear understanding of how much of a nest egg you need to retire, while living comfortably during your senior years—which may last for one, two, three or even four decades. If your current plan is far from hitting that target, don’t expect working longer to make up for the shortfall. You might have no control over when you retire, so saving as much as you can right now to prepare is the best defense.

Medicare will cover all of your medical care. Medicare will cover some of costs, but it doesn’t pay for everything. Original Medicare (Parts A and B) covers hospital visits and outpatient care but doesn’t cover vision and dental care. It also doesn’t cover prescription drug costs. Most people do not budget enough in their retirement income plans to cover the costs of medical care, from wellness visits to long-term care. Medicare Advantage plans can provide more extensive coverage, but they often come with higher premiums. The average out-of-pocket healthcare cost for most people is $300,000 throughout retirement.

Social Security is going to disappear. Nearly 90% of Americans depend upon Social Security to fund at least a part of their retirement, according to a Gallup poll, making this federal program a lifeline for Americans. Social Security does have some financial challenges. Since the early 1980s, the program took in more money in payroll taxes than it paid out in benefits, and the surplus went into a trust fund. However, the enormous number of Baby Boomers retiring made 2020, saw the first year the program paid out more money than it took in.

To compensate, it has had to make up the difference with withdrawals from the trust funds. As the number of retirees continues to rise, the surplus may be depleted by 2034. At that point, the Social Security Administration will rely on payroll taxes for retiree benefits. However, that’s if Congress doesn’t figure out a solution before 2034. Benefits may be reduced, but they aren’t going away.

Saving for retirement is challenging but focusing on the facts will help you remain focused on retirement goals, and not ghost stories. Your retirement planning should also include preparing and maintaining your estate plan.

Reference: Auburn.pub (Dec. 13, 2020) “Let’s Leave These 3 Retirement Myths in 2020’s Dust”

Why Planning Tasks Don’t Stop Because You’ve Retired

“Building enough wealth to sustain yourself in retirement is a monumental achievement. However, financial planning doesn’t end when you no longer rely on a paycheck.”

How you handle money and legal matters during retirement is more important than during your working years. It’s harder to bounce back from financial setbacks when you aren’t getting a regular paycheck. Managing finances and legal affairs to keep your savings intact and your estate plan current is part of your new responsibility as a retiree, says a recent article “7 Money Moves You Should Make After Retiring” from MoneyTalksNews.

1. Review estate planning documents. One of the most important documents is your will, but you also need to review any power of attorney and trust documents. A will is used to specify what you want done with your property after you die. What happens if you die without a will? The state will step in and make those decisions for you.

If you marry, divorce, inherit or buy property, you should update your will to reflect your changed circumstances. The arrival of a new grandchild may make you want to change your beneficiaries.

Reviewing your will after retirement and then periodically afterwards can put your mind at ease. If you don’t have a will, now is the time to have one created with an experienced estate planning attorney. You may also need a living will, power of attorney and letter of intent.

2. Review named beneficiaries. Beneficiary designations require updating anytime there is a change in your life. When you purchase life insurance, enroll in a pension plan or open an individual retirement account, you are often asked to name a beneficiary–the person who will inherit the proceeds when you die. These instructions take precedence over instructions in a will.
3. Prepare for your funeral. No one wants to consider their own mortality, but helping your loved ones be financially prepared for your funeral is a gift. By planning your own funeral, including making arrangements for funds to be available to pay for it, you save your family of the burden of having to plan and pay for a funeral while they are grieving your loss. Planning in advance also gives you an opportunity to decide what type of funeral you want.
4. Consider trimming transportation costs. If your household has two cars, but you could manage with one, consider paring down this expense. Seniors tend to pay higher rates than young people, so this is one way to trim your monthly expenses.
5. Review emergency fund status. Having money set aside for unexpected expenses is more important now than when you were working. An emergency fund can help you avoid taking money out of retirement accounts, which costs you not only the funds themselves, but the potential growth of the funds and any taxes that might be due on withdrawals.
6. Plan for Required Minimum Distributions (RMDs) and taxes. Once you celebrate your 72^nd birthday, you’ll need to start taking RMDs from tax-deferred retirement accounts. If you miss an RMD deadline or don’t take out enough, you may have to pay a 50% tax penalty on the amount of money you did not withdraw. RMDs are treated as taxable income, so they may impact your federal income tax rate, as well as the “combined income” formula used to determine the extent to which your Social Security benefits are taxable.
7. Do you still need life insurance? If your family is not dependent upon your income, now might be the time to drop life insurance policies. The main purpose of life insurance is to provide an income stream for loved ones, if you should die unexpectedly when you are working and raising a family. However, if you are retired, your children are grown and your spouse is not relying on your income, it may be time to let the policies lapse. On the other hand, if you can afford the premiums and wish to leave the proceeds to a spouse or your children, by all means keep the policy. However, check the beneficiary designation.

Reference: MoneyTalksNews (Oct. 9, 2020) “7 Money Moves You Should Make After Retiring”

Why Planning Tasks Don’t Stop Because You’ve Retired

“Building enough wealth to sustain yourself in retirement is a monumental achievement. However, financial planning doesn’t end when you no longer rely on a paycheck.”

How you handle money and legal matters during retirement is more important than during your working years. It’s harder to bounce back from financial setbacks when you aren’t getting a regular paycheck. Managing finances and legal affairs to keep your savings intact and your estate plan current is part of your new responsibility as a retiree, says a recent article “7 Money Moves You Should Make After Retiring” from MoneyTalksNews.

1. Review estate planning documents. One of the most important documents is your will, but you also need to review any power of attorney and trust documents. A will is used to specify what you want done with your property after you die. What happens if you die without a will? The state will step in and make those decisions for you.

If you marry, divorce, inherit or buy property, you should update your will to reflect your changed circumstances. The arrival of a new grandchild may make you want to change your beneficiaries.

Reviewing your will after retirement and then periodically afterwards can put your mind at ease. If you don’t have a will, now is the time to have one created with an experienced estate planning attorney. You may also need a living will, power of attorney and letter of intent.

2. Review named beneficiaries. Beneficiary designations require updating anytime there is a change in your life. When you purchase life insurance, enroll in a pension plan or open an individual retirement account, you are often asked to name a beneficiary–the person who will inherit the proceeds when you die. These instructions take precedence over instructions in a will.
3. Prepare for your funeral. No one wants to consider their own mortality, but helping your loved ones be financially prepared for your funeral is a gift. By planning your own funeral, including making arrangements for funds to be available to pay for it, you save your family of the burden of having to plan and pay for a funeral while they are grieving your loss. Planning in advance also gives you an opportunity to decide what type of funeral you want.
4. Consider trimming transportation costs. If your household has two cars, but you could manage with one, consider paring down this expense. Seniors tend to pay higher rates than young people, so this is one way to trim your monthly expenses.
5. Review emergency fund status. Having money set aside for unexpected expenses is more important now than when you were working. An emergency fund can help you avoid taking money out of retirement accounts, which costs you not only the funds themselves, but the potential growth of the funds and any taxes that might be due on withdrawals.
6. Plan for Required Minimum Distributions (RMDs) and taxes. Once you celebrate your 72^nd birthday, you’ll need to start taking RMDs from tax-deferred retirement accounts. If you miss an RMD deadline or don’t take out enough, you may have to pay a 50% tax penalty on the amount of money you did not withdraw. RMDs are treated as taxable income, so they may impact your federal income tax rate, as well as the “combined income” formula used to determine the extent to which your Social Security benefits are taxable.
7. Do you still need life insurance? If your family is not dependent upon your income, now might be the time to drop life insurance policies. The main purpose of life insurance is to provide an income stream for loved ones, if you should die unexpectedly when you are working and raising a family. However, if you are retired, your children are grown and your spouse is not relying on your income, it may be time to let the policies lapse. On the other hand, if you can afford the premiums and wish to leave the proceeds to a spouse or your children, by all means keep the policy. However, check the beneficiary designation.

Reference: MoneyTalksNews (Oct. 9, 2020) “7 Money Moves You Should Make After Retiring”

Planning for Long-Term Care Before It’s Too Late

“A strong long-term care plan spells out where you would like to live, how you plan to get around, and who will oversee your financial and health decisions when you’re incapacitated.”

Starting to plan for elder care should happen when you are in your 50s or 60s. By the time you are 70, it may be too late. With the national median annual cost of a private room in a nursing facility coming in at more than $100,000, not having a plan can become one of the most expensive mistakes of your financial life. The article “Four steps you can take to safeguard your retirement savings from this risk” from CNBC says that even if care is provided in your own home, the annual median national cost of in-home skilled nursing is $87.50 per visit.

There are fewer and fewer insurance companies that offer long-term care insurance policies, and even with a policy, there are many out-of-pocket costs that also have to be paid. People often fail to prepare for the indirect cost of caregiving, which primarily impacts women who are taking care of older, infirm male spouses and aging parents.

More than 34 million Americans provided unpaid care to older adults in 2015, with an economic value of $522 billion per year.

That’s not including the stress of caring for loved ones, watching them decline and needing increasingly more help from other sources.

The best time to start planning for the later years is around age 60. That’s when most people have experienced their parent’s aging and understand that planning and conversations with loved ones need to take place.

Living Transitions. Do you want to remain at home as long as is practicable, or would you rather move to a continuing care retirement community? If you are planning on aging in place in your home, what changes will need to be made to your home to ensure that you can live there safely? How will you protect yourself from loneliness, if you plan on staying at home?

Driving Transitions. Knowing when to turn in your car keys is a big issue for seniors. How will you get around, if and when you are no longer able to drive safely? What transportation alternatives are there in your community?

Financial Caretaking. Cognitive decline can start as early as age 53, leading people to make mistakes that cost them dearly. Forgetting to pay bills, paying some bills twice, or forgetting accounts, are signs that you may need some help with your financial affairs. Simplify things by having one checking, one savings account and three credit cards: one for public use, one for automatic bill-paying and a third for online purchases.

Healthcare Transitions. If you don’t already have an advance directive, you need to have one created, as part of your overall estate plan. This provides an opportunity for you to state how you want to receive care, if you are not able to communicate your wishes. Not having this document may mean that you are kept alive on a respirator, when your preference is to be allowed to die naturally. You’ll also need a Health Care Power of Attorney, a person you name to make medical decisions on your behalf when you cannot do so. This person does not have to be a spouse or an adult child—sometimes it’s best to have a trusted friend who you will be sure will follow your directions. Make sure this person is willing to serve, even when your documented wishes may be challenged.

Reference: CNBC (Jan. 31, 2020) “Four steps you can take to safeguard your retirement savings from this risk”

What Should I Know About Getting Veterans’ Disability Benefits?

“Military personnel make many sacrifices to protect our country, sometimes giving their lives. Veterans often give up their good health, even after they return home.”

Individuals who have medical conditions from service are eligible for disability benefits. However, there are a number of myths that make many veterans reluctant to claim them. The process of receiving benefits is also lengthy, confusing and—at times—discouraging.
patch.com’s recent article, “What Every Vet Should Know About Receiving Disability Benefits,” tries to dispel the myths and explain five facts that every veteran should know about disability benefits.

1. Your Claim May Be Denied. Don’t assume because a claim was denied it has no merit, because local offices can reject up to 71% of their claims because of processing errors. Even without errors, denials are frequent. If your claim was unfairly denied, file a Notice of Disagreement Form and consider hiring an attorney.

2. You Can Claim Disability at Any Time. Many vets don't realize a condition was caused by their service, until years after the incident. Many vets also assume they won't require benefits, until their condition worsens. No matter how long ago they served, veterans are allowed to file a claim for disability provided they meet basic requirements. There’s often an issue in demonstrating a connection between a soldier's disability and his or her time in service, because the evidence can be harder to provide years afterwards.

3. Vets Only Have a Year to Dispute a Rating Claim. Unlike filling a claim itself, veterans have only a year to dispute a rating provided by Department of Veterans Affairs. The VA determines ratings by considering any evidence provided, along with required exams and federal data and information from other sources. Ratings for individuals with more than one condition are calculated using a combined ratings scale.

4. Some Vets Are Entitled to Presumptive Service Disabilities. The government has accepted presumptive service disabilities for many veterans who were in particular situations. Presumptive conditions are chronic medical conditions that the government recognizes were most likely due to service. Those who experienced imprisonment, the Vietnam War, the Gulf War and ionizing radiation may have a presumptive condition.

5. Additional Benefits. In addition to disability services, vets can also obtain other benefits, which can include federal hiring preference, health care and prescription costs, VA home loan waivers, job training and an increase in benefits for dependents. Other supplemental options can help vets find jobs, support their families and afford medicine.

Although the process of fighting for disability benefits can be discouraging, veterans deserve these benefits. They earned them and deserve compensation for their duty to their country.

Reference: patch.com (October 7, 2019) “What Every Vet Should Know About Receiving Disability Benefits’

Why Don’t Some Border National Guardsmen Receive Veterans Benefits?

“Some of those guard troops who worked along the border in uniform may never meet the federal definition of a veteran.”

In April 2018, President Trump ordered 2,000 National Guard troops to the U.S.-Mexico border to help Homeland Security.

However, Colorado Public Radio’s recent article, “Even After Years In Uniform, Some National Guardsmen Don’t Get Veterans Benefits,” reports that some of those guard troops who worked along the border in uniform may never meet the federal definition of a veteran.
To qualify for Veterans Affairs benefits, such as health care or GI Bill education benefits, individuals are required to serve 180 days continuously on active duty. That means being requested by the federal government under specific circumstances.

National Guard troops are usually under the control of a state's governor, who can call them up to help with natural disaster. However, there are a variety of orders that can be used to mobilize Guard members. Despite the fact that President Trump called guard troops to the border and the federal government paid for the operation, in most cases, the kind of orders they were under do not qualify those troops for benefits.

Representative Mike Levin, a California Democrat, chairs a veterans subcommittee that recently held a hearing on the issue.

"We haven't followed a very basic principle," Levin said, "which is if you're expected to be doing the same sort of thing, putting your life on the line for whatever particular mission, I believe you should be able to get the same pay and benefits."

Representative Levin said Congress has been slow to respond to the changing role of the guard, which has been used more consistently since the terrorist attacks on Sept. 11, 2001.
"The expectations and the demands placed on our national guard and reserves that perhaps weren't there previously, we have to make sure that federal policy reflects that," he said.
In 2016, Congress changed the law, so anyone who retires from the guard or reserves after 20 years has honorary veteran status, no matter the amount of time they spent in active service.

However, this legislation didn’t allow them to qualify for federal benefits.
The federal benefits that guard troops often aren't eligible for, include long-term mental health care in the VA health system. The Veterans Administration estimates that there were 919 suicides in 2017 among guard and reserve members, who never achieved veteran status.

Reference: Colorado Public Radio (November 29, 2019) “Even After Years In Uniform, Some National Guardsmen Don’t Get Veterans Benefits”

How Do Qualified Retirement Plans Differ from Non-qualified Retirement Plans?

In 1974, a federal law was created to protect worker’s retirement income and require information about the accounts to be transparent, among other things. The law was named The Employee Retirement Income Security Act, known as ERISA.

At the very simplest of definitions, a “qualified retirement plan” meets ERISA guidelines, and a non-qualified plan does not meet those guidelines. So what does that mean?

Investopedia’s recent article on this subject asks “Qualified vs. Non-qualified Retirement Plans: What's the Difference?” Qualified plans include 401(k), profit sharing plans, 403(b), and Keogh (HR-10) plans. Non-qualified plans include deferred-compensation, split-dollar life insurance and executive bonus plans. Note that the tax implications for the two kinds of plans are also different. Except for a simplified employee pension (SEP), individual retirement accounts (IRAs) plans not created by an employer are not qualified plans.

Qualified plans are designed to meet ERISA guidelines. They qualify for added tax benefits, in addition to those received by regular retirement plans, like IRAs. Employers deduct an allowable portion of pretax dollars from the employee's wages for investment in the qualified plan. The contributions and earnings then grow tax-deferred, until they are withdrawn. A qualified plan may also have a defined contribution structure. With this, employees choose investments, and the retirement amount will depend on the decisions they make. With a defined benefit structure, there’s a guaranteed payout amount and the risk of investing moves to the employer.

To qualify as an ERISA plan, the plan sponsors must satisfy guidelines on participation, vesting, benefit accrual, funding and plan information.

Many employers offer employees non-qualified plans as part of a benefit or executive package. These plans are those that aren’t eligible for tax-deferral benefits under ERISA. Deducted contributions for non-qualified plans are taxed, when the income is recognized. Therefore, the employee must pay taxes on the funds before they’re contributed to the plan. Usually, the employer is not able to deduct any contributions made to non-qualified plans.

The big difference between the two plans is the tax treatment of deductions by employers. However, there are some other differences. Qualified plans have tax-deferred contributions from the employee, and the employer can deduct amounts they contribute to the plan. Non-qualified plans use after-tax dollars to fund the plan and, in most instances, the employer can’t claim their contributions as a tax deduction.

A plan must meet several criteria to be considered qualified, including the following:

• Disclosure–information about the plan's framework and investments must be available upon a participant’s request.
• Coverage–A specified portion of employees—but not all—must be covered.
• Participation–Employees who meet eligibility requirements must be allowed to participate.
• Vesting–After a certain duration of employment, a participant's rights to pensions are non-forfeitable benefits.
• Nondiscrimination–Benefits must be proportionately equal in assignment to all participants to prevent excessive weighting for higher paid employees.

Top executives and select employees are usually the ones who are offered these non-qualified retirement plans. One advantage of a non-qualified plan is that they can be designed to meet specific employee needs, when the qualified plans may not be suited for them.

Reference: Investopedia (July 15, 2019) “Qualified vs. Non-qualified Retirement Plans: What's the Difference?”

How Do I Know If Can I Retire Early?

“If you're considering retiring early, you'll forego not only the headaches of working but also the additional money earned that could have made your retirement even more comfortable. Make sure that you're truly ready before you leave.”

Investopedia’s recent article, “6 Signs You Are Ready to Retire Early” gives you six things to consider, when thinking that you may be able to retire early, instead of continuing to work.

1. Debts Paid Off. If the mortgage is paid off, and you don't have any loans, big credit card balances, or other debt, you won't have to worry about writing out big checks for bills in retirement. Therefore, your savings and retirement income will be available for you to enjoy life after work and free to use, in the event of an emergency.
2. Savings. If your investments meet or exceed the amount you were hoping to save, it’s another good sign you could take early retirement. However, if you didn't line up your retirement savings plan for early retirement, you’ll have to recalculate the length of your savings with these additional years. Depending on your age, you may not yet be eligible for Social Security or Medicare. As a result, your savings will need to cover expenses, until you reach the eligible age.
3. Early Withdrawal Penalties Avoided. If your 59th birthday was six months ago or longer, you're eligible to take penalty-free withdrawals from any of your 401(k) plans. This typically applies to other qualified retirement plans but check with the IRS to be sure yours is included.

If you’re a wannabe early retiree with a 401(k), if you continue working for your employer until the year that you turn 55 (or after), the IRS lets you withdraw from only that employer's 401(k) without penalty when you retire or leave, provided you leave it at that company and don't roll it into an IRA. However, if an employee retires before age 55 [except as noted above], the early retirement provision is forfeited, and the 10% penalty will be incurred for withdrawals before age 59½. You can also set up a series of substantially equal withdrawals over at least five years, or until you turn 59½, whichever is longer. However, similar to withdrawals from a 457 plan, you'll still have to pay the taxes on your withdrawals.

4. Healthcare Costs. Early retirees must have a plan in place to cover health costs during the years after retiring and before becoming eligible for Medicare at age 65. If you have coverage through your spouse's plan—or if you can continue to get coverage through your former employer—it’s another signal that early retirement could be an option. COBRA may also extend your healthcare coverage for a period after leaving your job. However, without your former employer's contributions to your insurance coverage, your bills with COBRA may be higher than other options. You can also buy private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses, regardless of what age you are. Note that if you leave your job, you won't be able to keep making contributions to the HSA.
5. The Ability to Live on Your Budget. Retirees on fixed incomes, like those with pensions and/or retirement plan withdrawals, typically have lower monthly incomes than they did when they were working. Practice sticking to a retirement income budget for at least several months and test your reduced retirement budget to get a feel for how hard living on a fixed income can be.
6. You’ve Prepared a New Plan. Leaving work early to spend long days staring at the walls or your spouse will lead to a miserable early retirement. It can also lead to increased spending, if expensive travelling, shopping and dining out become your main activities. Create a defined travel, hobby, or part-time employment plan. You can even create a daily routine. These can help you ease into early retirement.

Reference: Investopedia (May 16, 2019) “6 Signs You Are Ready to Retire Early”