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How do people retire early? Say that their debts (including house) are paid in full, they have ample money already saved in IRAs, 401ks, etc., they are expecting a pension, and have earned enough SS credits so that at age 65, their expected annual income from all these sources will far exceed their expenses and spending. Assume they are a married couple in their 40s.

What type of account should they fund now to give them a shot at using that savings to pay for their lifestyle in their 50s, before they access their retirement options (which aren't to be touched for at least a decade)? Is it wise for them to continue adding to retirement accounts now?

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    Work hard. Save a lot. Invest well. Despite how much they're trashed, I bought a couple of variables annuities which I have been drawing on since age 59-1/2 and they have been and will continue to pay for the bulk of my living expenses until the day I die... and if there's anything left over, my estate gets the balance.
    – Bob Baerker
    Apr 15, 2021 at 20:03

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You mention IRAs and 401(k)s so I'm assuming you're based in the US. There is no requirement that you wait for retirement age to begin drawing on your retirement accounts-- you can happily start drawing on it early via substantially equal periodic payments. That's going to be based on your age and the size of the account but you're getting basically the same amount every year which is roughly what you'd want to happen in retirement.

Beyond that, though, most people that retire early are going to have a fairly large amount invested in a regular old brokerage/ mutual fund account. It's not tax advantaged. But it is very flexible. You can withdraw whatever you want whenever you want as long as you pay your taxes. Ideally, mostly long-term capital gains taxes.

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    I believe Roth IRAs/401Ks allow you to take out your contributions without penalty as well.
    – JimmyJames
    Apr 16, 2021 at 15:42
  • @JimmyJames Correct! You can withdraw contributions and gains, but each has their own set of rules & exceptions which can be googled.
    – self.name
    Apr 16, 2021 at 18:25
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    With Roth, you can withdraw original contribs without penalty, since the tax was already paid. They don't let you do that with the appreciation, because if they did, it basically becomes a magic tax-free investment account, and that would defeat the purpose of the thing.
    – Harper - Reinstate Monica
    Apr 16, 2021 at 22:04
  • An important caveat to SEPP's is that you have to continue for 5 years or until you turn 59.5, whichever is longer. If you don't (or if you fail to draw the right amount) the penalty is pretty steep (all the early withdrawal penalties you avoided, plus interest).
    – stannius
    Apr 20, 2021 at 19:10
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Many people who plan to retire early have, or put, substantial assets into non-tax-advantaged accounts (regular brokerage and savings accounts, real estate, etc.).

Some people, including me, plan to use a Roth conversion ladder. You can search for the details, but in brief:

  1. Start: with 5 years of accessible money.
  2. In years 1-5: Convert 1 years of expenses from a traditional to a Roth IRA. 3, In years 6+: Convert 1 years of expenses from a traditional to a Roth IRA. Withdraw the aged, converted contribution from 5 years earlier.
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