Editing Retirement (section)

===Savings needed===
{{further|Withdrawal rate}}
{{multiple image | total_width=450
| image1= Year-to-year portfolio balances example 73-75.gif |caption1=Portfolio balances after taking $35,000 (and [[Inflation adjustment|adjusting for inflation]]) from a $750,000 portfolio every year for 30 years, starting in 1973 (red line), 1974 (blue line), or 1975 (green line).<ref>{{cite web|url=http://firecalc.com/intro.php|title=FIRECalc: Why another retirement calculator?|work=firecalc.com|access-date=16 January 2017}}</ref> Results depend heavily on what happens to the [[stock market]] in the first few years.
| image2=20200101 Remaining life expectancy - US.svg |caption2=''Remaining'' life expectancy—expected number of remaining years of life as a function of ''current age''—is used in [[Pension|retirement income]] planning.<ref name=SocSecPeriodLifeExpectancy_2020>{{cite web |title=Actuarial Life Table |url=https://www.ssa.gov/oact/STATS/table4c6.html |publisher=U.S. Social Security Administration Office of Chief Actuary |archive-url=https://web.archive.org/web/20230708231105/https://www.ssa.gov/oact/STATS/table4c6.html |archive-date=July 8, 2023 |date=2020 |url-status=live }}</ref> Many will exceed their life expectancy, requiring income over a longer period.
}}
While [[conventional wisdom]] has it{{who|date=February 2018}} that one can retire and take 7% or more out of a portfolio year after year, this strategy would not have worked very often in the past.<ref>{{cite news| url=https://www.wsj.com/articles/SB114816694417158844 | work=The Wall Street Journal | title=Make Sure Your Money Lasts as Long as You | first=Jonathan | last=Clements | date=21 May 2006}}</ref><ref>{{cite web|url=http://www.dallasnews.com/s/dws/bus/scottburns/columns/archives/1995/951003TU.htm|title=Dallas News: Breaking News for DFW, Texas, World|work=dallasnews.com|access-date=16 January 2017}}</ref>

Those contemplating early retirement will want to know if they have enough to survive possible [[bear market]]s. The history of the US [[stock market]] shows that one would need to live on about 4% of the initial portfolio per year to ensure that the portfolio is not depleted before the end of the retirement;<ref>{{cite web|url=http://www.dallasnews.com/s/dws/bus/scottburns/readers/trinitystudy/table3.html|title=Dallas News: Breaking News for DFW, Texas, World|work=dallasnews.com|access-date=16 January 2017}}</ref> this rule of thumb is a summary of one conclusion of the [[Trinity study]], though the report is more nuanced and the conclusions and very approach have been heavily criticized (see [[Trinity study]] for details). This allows for increasing the withdrawals with inflation to maintain a consistent spending ability throughout the retirement, and to continue making withdrawals even in dramatic and prolonged [[bear market]]s.<ref>{{cite web|url=http://retireearlyhomepage.com/safesum.html|title=Retire Early's Safe Withdrawal Rates in Retirement.|work=retireearlyhomepage.com|access-date=16 January 2017}}</ref> (The 4% figure does not assume any pension or change in spending levels throughout the retirement.)

When retiring prior to age {{frac|59|1|2}}, there is a 10% IRS penalty on withdrawals from a retirement plan such as a 401(k) plan or a Traditional IRA. Exceptions apply under certain circumstances. At age 59 and six months, the penalty-free status is achieved and the 10% IRS penalty no longer applies.

To avoid the 10% penalty prior to age {{frac|59|1|2}}, a person should consult a lawyer about the use of IRS rule 72 T. This rule must be applied for with the IRS. It allows the distribution of an IRA account prior to age {{frac|59|1|2}} in equal amounts of a period of either 5 years or until the age of {{frac|59|1|2}}, whichever is the longest time period, without a 10% penalty. Taxes still must be paid on the distributions.