Personal Finance

We want to retire in 10 years and can't touch our 401(k) until we reach 59 - what's the ideal way to fund our lifestyle?

Marc Guberti

Published: February 17, 2025 12:15 pm

A Redditor recently posted in the Fat FIRE subreddit about bridging the gap from now until the couple can tap into their 401(k) plan without incurring penalty fees. One of the spouses is in their late 40s, while the other spouse is in their early 50s. 

The Redditor is also wondering if they should contribute to a Roth 401(k) instead of a traditional 401(k). However, the Redditor acknowledges that they are in a high tax bracket, and Roth contributions may not be the best approach at this stage.

I’ll share my thoughts on what to do for bridge years, but it is always good to speak with a financial professional if you can.

Continue to Earn Income

It’s best to continue working if you can, but if you already have a high net worth, you can take a more flexible approach. Instead of working a job that makes you feel burnt out, you can opt for a remote job or a similar opportunity that provides more flexibility. Still earning income makes it easier to get through the bridge years.

Calculate How Your Taxable Brokerage Accounts Can Cover Your Expenses

Normally, investors use the 4% withdrawal rule to gauge how much money they need to retire. However, if you already have enough funds in your 401(k) plans for retirement, you can think differently with your brokerage account. It may be okay to withdraw 8%-10% each year from your taxable brokerage account to get through the years when you don’t have access to a 401(k) plan.

The 8%-10% range is completely arbitrary, and it may not work for your situation. However, it may be okay to makehigher withdrawals from this account in the meantime.

Borrow Money Against Your 401(k) Plan

This strategy is a bit risky if you end up getting fired, but you may want to consider this strategy as you get closer to the finish line. Borrowing money against your 401(k) plan with a loan or a line of credit can let you access your funds without paying the 10% penalty fee or taxes. 

Borrowing against a 401(k) is only good if you are very close to the finish line. The disadvantage of borrowing against this account is that you may not be able to contribute to it while you have a balance on the loan. Furthermore, you may have to immediately repay the loan if you get fired from your 401(k) provider.

If you’re looking for an alternative way to borrow money, you may want to consider tapping into margin. Robinhood and Interactive Brokers are some of the firms that let you borrow at rates below 6% APR against your taxable brokerage account. These aren’t long-term solutions, but they can help you as the gap starts to close between the couple and the older spouse turning 59 1/2 years old.

Retire at 55

While employees can access their 401(k) portfolios penalty-free when they turn 59 1/2, you can actually tap into your portfolio earlier if you are unemployed. If you retire at 55, you can access the funds without incurring the 10% penalty.

With this strategy, the spouse in their early 50s can retire sooner, but it’s important to assess who has more money in their retirement accounts. Does the older spouse have enough money to pull from until the younger spouse turns 55? That’s something you have to assess, and a financial advisor may be able to help.