(late 30s) Possibly living off some early retirement money for a while, need someone to double check the math for me real quick.

[jaswds]

I got some money saved up for retirement, I'm currently in a two program to become an respiratory therapist, they make around 70-90K where I live. I was planning on living off my retirement for 3 years and getting a small short hour job on the side (for health insurance) while I pass the program in 2 years and look for full time RT job for a max of 1 year (from what I hear, it's a year tops to get one.)

So I would love if someone with some financial expertise to double check my math for me, and don't roast me to hard if it's wrong, I'm trying to figure out my options here.

My annual budget is around 30,000.

Got 400,000 K in my 401K.

I plan to take out 39,000 once a year for 3 years.

When I take it out, it's 20% for taxes and a 10% penalty fee (early withdrawal, I'm not 60) for a total of 30% I lose upon early withdrawal.

That leaves me with taking home 27,300, plus an additional 5,000 from my short hour side job, leaving 32,300 for the year.

State tax rate is 6%, the fed rate is 12% for a total of 18% on taxes.

Since I have to file what I initially took out of my 401K as my annual income (40,000) plus 5,000 so we got an annual income of 44,000 that I pay 18% taxes, which I believe is 7,920 a year.

Now for the money remaining in my 401K. It's still in the market and the average rate of annual return is 11%, but just to be safe we'll say it's 7%. I calculate my 401K loss to be as follows.

Year 1:

400,000 - 39,000 = 361,000

361,000 x .08 = 28,880

28,880 + 361,000 = 389,880

389,880 end of year 1

Year 2

389,880 - 39,000 = 350,880

350,880 x .08 = 28,070.40

28070.40 + 350,880 = 378,950.40

378,950.40 end of year 2

Year 3

378,950.40 - 39,000 = 339,950.40

339,950.40 X .08 = 27,196.03

339,950.40 + 27,196.03 = 367,146.43

367,146.43 end of year 3

 

[gracenationminiss]

@jaswds Aren't student loan interest rates like 5%?

It seems like you're doing crazy damage to your retirement for no reason?

 

[vero18]

@gracenationminiss Agree with this. Get a part time job and a loan to live off. Do not screw over your future self

 

[leira]

@jaswds The only time you should be pulling out retirement money is when you retire, or you are facing bankruptcy (and even then those funds could be exempt, so you still don't want to pull them). Have you considered student loans instead? Even if we say its 8% that's over 130k you just lost IMMEDIATELY considering that 400k would be worth 500k if you didn't withdraw at all. Plus that is going to compound on all future growth which could be over 600k of lost growth by 60, possibly over a million if you retire even later. This just seems like a bad idea all around.

 

[jaswds]

@leira Thanks for taking the time to answer this.

I was planning on putting the max amount (I believe around 20k) back into my 401k once I become an RT for a year or so to minimize the damage (somewhat).

It seems the only other option is private student loans and that honestly sounds much worse to me.

What do you think?

 

[leira]

@jaswds The student loans are almost certainly the better option. Yeah if you pass and you contribute the extra income every single year, you will catch up to your mistake, but it's better to just take out a private student loan. Even private loans don't have that insane of an interest rate, and certainly not higher than the growth lost on a 401k early withdrawal

 

[jaswds]

@leira Thank you so much. I’m weighing all my options so I’m taking all the advice I can get, I really appreciate it.

 

[pacman1989]

@jaswds I agree with others who recommended a student loan over early withdrawals.

 

[steve77777]

@jaswds You can have loans with less % than the 20% for taxes and a 10% penalty.

 

[angelbelle]

@jaswds This is stupid… do not pull from retirement for young living expenses. You likely already have more than 1/2 of your total retirement saved for if you don’t touch your money and just let it grow. If you empty it now it you will be starting over at 40 with close to zero in a retirement account. Or… you can get loans and live cheaper for a couple years and then pay off those loans after you get a good job. Don’t sacrifice your nest egg.

 

[anicondri]

@jaswds I don’t know many part time jobs that offer health insurance.