the rule of 55

The Rule Of 55 | Ep 201

The IRS provision that will allow you to access the money in your 401k long before 59.5. Brad shares his COVID board game of choice and Jillian from Everyday Courage joins us to discuss what to do when all hope is lost.

Resources

 

Brad has been enjoying playing Dominion and has found a free online version. Brad and his family have been getting together with his brother over Zoom for some fun online Dominion playing. If you'd like to play with Brad online you can connect with him at the Dominion website. His handle there is BradChooseFI.

The Mailbag

Ryan wrote in announcing he is debt-free! He found ChooseFI six months ago and he pushed himself to get his finances in order 15K of student loans and 5K credit card debt! Awesome job Ryan!

Nick called in with a question about the Rule of 55.

Hi Brad and Jonathan, my name is Nick from Westchester, Pennsylvania. The reason for my call today was I was hoping you guys would do a piece about the Rule of 55 as it pertains to 401k plans. The bulk of my retirement savings is in my 401k and unfortunately that's not accessible until 59.5. I've heard many great strategies such as the backdoor Roth on your shows before but I've never heard talked about this Rule of 55.

The Rule of 55 is an IRS provision that allows you to withdraw funds from your 401k or your 403b without a penalty at 55.

You can access funds in the calendar year of the year you turn 55 (or later).  And for public employees, it becomes the Rule of 50. It also has to be from your current employers 401k or 403b. You can also roll money over from old 401k to your current 401k.

For a deeper dive, check out this article from the Balance.

Listen: Recovery And Healing With Deanna Broaddus

Businesses That Are Pivioting

Jessica wrote in with an example of how local business has adapted to the changes. They quickly adapted to a limited menu for curbside pick up and delivery. They are also selling groceries with prices on par with the local grocery store. Recently, they patterned with a local distillery that is making hand sanitizer and is now selling spray bottles of hand sanitizer and wipes.

Jonathan knows a photographer who has offered a free social distancing photo shoot. She is fostering so much goodwill within the community and will boom when things go back to normal.

Brad is loving his Zoom Crossfit workouts. He says he would pay full price to do these even after the restrictions have been listed. You can check out his particular Crossfit workout at Westend Crossfit.

Jillian From Everyday Courage

We got a comment recently that goes as follows:

I've been listening without commenting for months now. I've gotten through half of the episodes skipping around to find something inspiring. I've been determined to listen all the way through before giving up but I feel like it's time to give up. I've got to say, this has been the most difficult four months. I start every episode that today is the day I get action items to turn my loser life around. Then I finish every episode wondering why I don't get the excitement and why I don't believe this is possible. What's wrong with me? I literally finish every episode depressed and upset at the guests, the host, and most of the commenters.

I'm starting late to financial literacy and I'm in debt up to my eyeballs. I don't see how any of the topics covered in the hundreds of episodes I've listened to can help someone who is as far behind as I am. Everyone is either 1) a natual saver who has optimized, 2) some sort of genius who is just better than most people at everything, or 3) had a great family that taught them and guided them into a life that worked.

I'm too stupid, useless, and too far behind for any of this to ever work. I just can't listen anymore and honestly, I'm not sure there is any hope left.

Jillian understands, she often felt the same way. That getting her finances in order was just not in it for her. She felt hopeless and that there just weren't possibilities for her. She was afraid to share her personal story online because it wasn't perfect. But reminds us that life is gritty but it is possible to make progress.

Imperfect people continue to show up and make progress in their lives, but it's not easy.

What Can You Do If You Are Feeling Hopeless?

It's very easy to look at someone from the outside and think they are crushing it and that it's just win after win. But in reality… they are out of their comfort zone and just fumbling through and trying new things–and failing more than they succeed.

Try to get away from the success/failure mindset. Take one little step. You can't cross the finish line today… but what CAN you do? What is a tiny change you can make today? Do that. And follow that with another little step. And another

You can start by being curious about your budget. Don't start by trying to create the perfect budget… just start by being curious about where your money is going. Just knowing where you are at is a big first step.

Or maybe you can start by simply listing your debts and interest rates. If it's really hard, set a timer and work until the timer goes off… and then stop for the day. Aim for doing this three times a week until it's complete.

The important part is to start, and realize that it won't be perfect, and it won't get done overnight. But celebrate every little step along the way!

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4 thoughts on “The Rule Of 55 | Ep 201”

  1. I enjoy your podcasts and this one reminds me of another way to take 401k money out before you are 59.5. The Internal Revenue Service (IRS) has a rule called 72t, “Substantially Equally Periodic Payments or ( SEPP ),” and when specific criteria are met by using the 72 (t) rule, it eliminates the 10% early withdrawal penalty normally due for withdrawals from an individual retirement account, 401 (k), TSP, 403 (b), or 457 plan prior to age 59 ½.
    We retired early around 50 and worked with our accountant and financial planner to calculate the amount we had to take out each year to qualify to meet the rules of 72t. We were able to withdraw money from our 401k and IRAs without paying the 10% penalty. Once it was set up we had to keep the same distributions each year until we were 59.5 or for five years whichever was longer.
    This might be a good tool for those like us that have most of our FI money tied up in 401k or IRAs as a good way to start living off of it without paying the 10% penalty. Might also be another good Podcast subject!

  2. Rule of 55 is infinitely flexible, as long as the 401k allows it. I got laid off in 2016 and wasn’t sure of future income, so I didn’t want to commit to taking out money until I was 59.5 or five years, whichever was longer. Rule of 55 was a godsend, I needed so much more flexibility than 72t would provide, in my situation.

  3. Wow – Jillian’s comments about growth mindset really spoke to me. I’m in a new job – it’s a stretch role, and I’m super stressed about performing well while quarantined at home with 3 kids. I was rehearsing a speech to my new boss in my head about how grateful I am he’s taken a chance on me, and I know I can be excellent at this job, but I don’t have the time or mental space to learn or do everything I need to right now. Then I heard Jillian say that we need to get away from a “success” or “failure” mindset – because reality isn’t that black and white. We can learn, we can be curious, we can just take the next step in the right direction. I ran downstairs to write Jillian’s comments on my home-office whiteboard. I’ll try to remember that I’m not failing (or succeeding) at this new job – I’m learning, and I just need to do the next right thing.

  4. The comment by the listener broke my heart. I’m fortunate that I started investing early, but I took a circuitous route in life that prevented me from investing much during my prime years, i.e., 20s and early 30s. I sold a chunk of my investments and used all of my cash to go back to school in my early 30s. I changed my career and the first few years didn’t provide the huge increase in salary that I had expected. Plus, I now had much higher rent and a student loan. But I didn’t give up. I took advantage of all the overtime I could, saved everything I could, and paid off my student loan in less than five years. Working all that overtime gave me an advantage – it showed that I was hungry to work and learn. The more I worked, the more I learned and the more competent I became. Even so, it was still hard.

    At the end of every 14-hour day (and there were countless of them!), I came home to an empty house. Many times I dissolved into tears as soon as I shut the door of my empty apartment. I was exhausted, hungry, stressed out beyond all belief, and dreading doing it all over the next day. It seemed like all my colleagues had partners. They had someone to share the bills and the hard times with. I had no one. When a disaster struck at home, there was no one to help. I had to juggle everything, work crazy long days, AND deal with snide remarks about my single status well into my late 30s. Sometimes those remarks were brutal and were delivered during my most vulnerable states. But I kept trying and building. The thing is, if you saw or worked with me, you wouldn’t know how hard it was for me. You wouldn’t know how resentful I was at times of those who didn’t have to work as hard as I did. You wouldn’t know how many countless overtime hours I worked to pay for my nice condo or the exotic (albeit frugal) vacation I went on. You would’ve just seen happy Facebook photos.

    My point is, NONE of the people you’re listening to on these podcasts have everything figured out. You don’t know the painful parts of their journeys. They got some things right. They also got some things wrong. Just because they started this path at a younger age and seem to have done well doesn’t mean that disaster won’t strike at some point in life. That’s life.

    Am I sometimes jealous of the people who are much younger than I am and well along this journey? Sure, sometimes I am. I used to get jealous of all the married couples in this community building something together because that’s all I found at first. But you know what? That’s counterproductive. Their journeys aren’t mine. I can’t turn back time. But I can look ahead. I can plan accordingly. I can make one change per day. That’s what I did to get back on the right track. Once I got the ball rolling, it took off. Again, was it easy? Not always. But I tried making it fun.

    You are where you are. You can choose to stay where you are and see the negatives. Or you can choose a different mindset and use others’ experiences as inspiration to make changes. This podcast (and this community) are FULL of action items you can do every single day to pay off that debt and start investing. But you must start somewhere.

    Find one thing to start with:
    Track your expenses. Find what you can cut. Cut those things. Put those savings towards debt.
    Find a side hustle. Start that side hustle. Put that income towards your debt.
    Rinse. Repeat.

    It won’t happen overnight. But if you don’t take any action and just wait for the inspiring story to appear, you won’t make any progress. Use yourself and your goals for inspiration and get going. What are you going to do? Take one step to make a bad situation better? Or complain about it and feel sorry for yourself and let the situation worsen as you do nothing?

    Brad and Jonathan, can you do a podcast interview with this person and use the community to help him or her? I am certain this isn’t the only person feeling this way. This mindset is an area of opportunity.

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