When I decided to retire early I always considered my plan to be one of phases. Where milestones would be reached and planned financial strategies would become available to implement. Each early retirement phase brings decisions that would need to be made based on relevant current data and the realities of real time. We’ve never had a million dollar portfolio to draw from so planning is essential. In my wife’s and my early retirement we have just reached another early retirement plan milestone. We have now both enjoyed our 62nd birthday. Here’s a glimpse at our early retirement phase approach.

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Using An Early Retirement Phase Approach

Early Retirement Age to Age 59.5 Phase

Key to early retirement is how to fund your new lifestyle. Once the paychecks stop the money has to come from somewhere. In our case almost all of the money was in tax deferred retirement accounts. For our situation we rolled our 401ks into IRAs.

For my retirement at age 51, penalty free pre age 59.5 IRA withdrawals required my using the SEPP 72t loophole. I would use that until age 59.5 for monthly distributions to cover my part of our split budget. Because these distributions are meant to be uninterrupted for the longer of 5 years or age 59.5, when doing my “retire early and often” thing I would reinvest any retirement job earnings back into our net worth. I retired during the great recession and this went far better than anticipated. My earnings reinvestment included mortgage payoff, taking advantage of 401K opportunities, and adding to our Roth holdings. 

My wife retired on her 58th birthday after meeting her 20 year work anniversary. She received a couple of small perks for hitting that 20 year milestone from the local bank branch she worked for. Instead of using age 55+ 401k penalty free distributions she simply set aside enough cash in a savings account to cover her part of the budget until reaching age 59.5. This way she could avoid retirement account taxes/penalty issues for the first 1.5 years of her early retirement.

Age 59.5 to Age 62 Phase

In this early retirement phase my SEPP 72t would end and we both could then freely establish a monthly penalty free distribution rate from our IRAs based on budgetary and actual real time portfolio numbers. This phase still requires 100% reliance on our portfolio to continue funding our early retirement lifestyle and takes us to the age of Social Security availability when new decisions would be made. 

Age 62 to Age 65 Phase

This is the early retirement milestone we both have recently reached, my wife last December and myself this June. When to start Social Security benefits takes the consideration of financial, longevity, legacy, and emotional issues. We don’t know how long we will live, how solvent Social Security will be long-term, or whether financial markets will act historically. 

Based on what we know today and running our numbers through both a retirement calculator and Social Security calculator we decided to start my wife’s early age 62 reduced Social Security benefit. As the top wage earner between us and the way survivor benefits work, my plan has always been to wait until at least my full retirement age of 66.7. With my wife being the lower wage earner, starting her Social Security now allowed us to reduce her monthly IRA distribution by 66%. The smaller IRA distribution and her Social Security together covers all of her budget. I continue funding my part of the budget from my IRA distributions.

Age 65 to 70 Phase

With the age 65 milestone early retirement phase comes Medicare. For our entire retirement I’ve had to pay for retirement health insurance costing me in the 30% to 35% of my overall budget. Our Medicare should greatly reduce my budget and retirement funding needs. At this point I feel we will no longer be early retirees and just traditional well practiced and experienced retirees. 

This is also a phase where I will make my own Social Security decision. Either take it at full retirement age or delay until age 70. My FRA Social Security estimate would cover 75% of my budget as it is today and my budget should actually be lower after Medicare. Once beginning Social Security I will need much less dependence on my portfolio for lifestyle funding. 

Depending on portfolio performance we will also begin financial planning that looks at looming RMD–Required Minimum Distributions during this phase to have time to strategically prepare in advance. 

Age 70 and Beyond Phase

I can only hope to have RMD problems in our last early retirement phase. Meaning there is a good sized portfolio left after decades of retirement. When this time comes we will do as we have done. Evaluate the reality of the real time and deal with it strategically. If still in our current home we will also start to consider what’s next. Our 2 story home sitting on a quarter acre in Colorado at 6,200 feet in elevation might be more than we will want to stay into older age. This is a phase where the reality of our own aging will play a major role.

It All Seems So Simple Now

When we were still working and planning for early retirement it sometimes felt scary. We get conditioned after decades of employment and paychecks. There can be fear of walking away and giving it up, even for the freedom that early retirement offers. All of the unknowns and cautions thrown at us can be intimidating. Especially when looking at it financially covering 20, even 30 plus years of our lives. But by chunking our retirement plan into retirement phases it makes it easier to mentally visualize and financially plan for. At least it has for us.