Early retirees shouldn't worry too much about waiting until retirement age to make withdrawals. There are legal ways around such penalties.

1. Avoiding early
withdrawal
penalties
altogether!
HOW TO RETIRE EARLY

2. STEP #1: FIND YOUR “ENOUGH”

3. STEP #1: FINDING YOUR “ENOUGH”
 Without consciously figuring out what you need to be happy,
you’ll always be susceptible to the hedonic treadmill.
 That is, you’ll believe that “once I buy this, I’ll be happy”, only to
realize that happiness is short-lived, and you need to find your next
spending target. It’s an expensive, never-ending battle.
 As fellow Fool Morgan Housel has pointed out, happiness
really boils down to a few key factors:
 Control over what you’re doing.
 Progress in what you’re pursuing.
 Connections to other people.
 Having purpose and meaning.

4. STEP #1: FINDING YOUR “ENOUGH”
The purpose of finding your “Enough” is three-fold.
1. Once found, you’ll be far better at listening to your own
needs, and figuring out what you need to be happy—instead
of listening to the outside world alone for validation.
1. Almost always, concentrating on this causes a reduction in
spending. Contrary to what some may have us believe, after
having our basic needs met, money and possessions to add
much sustainable contentment.
1. By reducing your spending, you’ll be able to save more and
you’ll need less (since you’ll be spending less) to retire on.

5. STEP #2: MAX OUT YOUR 401(K) AND
TRADITIONAL IRA

6. STEP #2: MAX OUT YOUR 401(K) AND
TRADITIONAL IRA
 We’ll get to why these two can work even better
than a Roth a few steps later.
 For now, all you really need to know is that by
maxing out both of these accounts, you
significantly reduce your taxable income.

7. STEP #3: USE YOUR EXTRA SAVINGS TO PUT
INTO NON-TAX ADVANTAGED ACCOUNTS

8.  Yup, you read that right—start investing in a regular old
brokerage account.
 Because you’re a long-term investor, you shouldn’t owe much—
if anything—in capital gains.
 You will, however, need to pay taxes on dividends you receive.
 Once you retire, this will provide you with a necessary cushion
and, in the end, you might not owe anything in taxes.
STEP #3: USE YOUR EXTRA SAVINGS TO PUT
INTO NON-TAX ADVANTAGED ACCOUNTS

9. STEP #4: RETIRE!

10. STEP #4: RETIRE!
 To be honest with you, I actually hate the word “retire”. It’s not
very specific, and too often, people don’t realize that the goal
of just “not working” isn’t very satisfying.
 I prefer to say: “declare your financial independence.”
 This doesn’t mean that you don’t work, or create things, or participate
in activities that you may or may not get paid for.
 Instead, it means that you have full control over your time, and you
get to decide when to “work”, when to “relax”, and when to do
whatever else you want to do.

11. STEP #5: USE YOUR MONEY FROM YOUR
BROKERAGE ACCOUNT TO LIVE OFF OF…FOR NOW

12. STEP #5: USE YOUR MONEY FROM STEP 3
TO LIVE OFF OF…FOR NOW
 Believe it or not, you could actually live off of your capital
gains and dividends tax-free if you’ve truly reduced your
spending.
 If you are in the 10% or 15% tax brackets in retirement, you
owe nothing for such gains. As I’ve shown before, you could
bring in over $100,000 per year and still be in this tax
bracket, depending on your filing status and the exemptions
that you take.

13. STEP #6: BEGIN SLOWLY CONVERTING TO
A ROTH IRA

14. STEP #6: BEGIN SLOWLY CONVERTING TO
A ROTH IRA
 In your first year of retirement, convert an amount equal to
your expected yearly expenses into a Roth IRA. You will
continue doing this every year until all of your money has been
converted.
 Any conversions are considered regular income, so there’s
likely no way to avoid paying some taxes on these conversions.
 However, because you are retired and living off of less than you were
earning in your working years, the taxes you owe should be
substantially less than had you initially put your money into a Roth
IRA.

15. STEP #7: AFTER FIVE YEARS, START
LIVING OFF OF YOUR ROTH MONEY

16. STEP #7: AFTER FIVE YEARS, START
LIVING OFF OF YOUR ROTH MONEY
 Once five years have passed, you can withdraw any principal
you’ve put in a Roth tax free!
 By the time you reach 59 ½, you can also withdraw any capital
gains tax-free as well!
 And just like that, you’ve avoided paying a ton of taxes, and
maximized your time for the most important things in life!

17. LOOKING FOR OTHER WAYS TO MAXIMIZE
RETIREMENT INCOME?
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