Q&A: How Someone Who’s Nearly a Millionaire Can Enjoy the Benefits of Their Portfolio Sooner

In This Article

Below is an email transcript from a BiggerPockets Money listener who sent me a message about their personal financial situation and wanted my insights. We’ve used AI to edit the email’s content to be more readable in an article format and remove sensitive personal information from the sender to protect their privacy.

Sender’s Message

Scott,

I recently listened to Episode #602 of your podcast on the “Middle-Class Trap,” and I related to it more than I expected. I wanted to reach out because I find myself in a unique financial situation and would appreciate your insights on optimizing my path to financial independence.

Background

I’m 54 years old, single, and child-free, with a net worth of $937,000. My assets are allocated as follows:

• Pre-tax retirement accounts (including a 457b): $788,000
• Roth accounts: $96,000
• Taxable brokerage (dividend stocks & ETFs): $11,000
• Savings bonds: $11,000
• Cash (CDs, savings, money market, checking): $31,000

I worked in Northern California for over 25 years but left in 2022, disenchanted with the cost of living and overall quality of life. I took a year off to travel, staying with friends and family and occasionally in short-term rentals.

While I initially hoped to retire permanently, I quickly realized I wasn’t quite financially independent. Since spring 2023, I’ve been working in retail, earning $31,000 annually, and currently live rent-free with a family member in Pennsylvania, allowing me to save approximately 50% of my income.

In August 2025, I will begin receiving a $36,000 annual pension, which will significantly improve my financial flexibility. However, I am still navigating the most tax-efficient way to supplement this income while achieving my desired lifestyle.

My Financial Independence Goals

I would like to:

• Maintain an annual income of at least $84,000 (approximately 5X my anticipated rent of ~$1,200/month).
• Move into my own apartment once my pension begins while maintaining financial security.
• Incorporate slow travel (monthlong stays in different locations) into my lifestyle.
• Support a close friend in financial hardship, as I have the means to assist in a limited capacity.

Key Challenges & Considerations

• 457b withdrawal withholding: While I can withdraw from my 457b without penalty, I was caught off guard by the mandatory 20% withholding on distributions. I understand that I can reclaim overpayments at tax time, but this limits my ability to access the funds efficiently throughout the year.
• Bridge to 59½: I want to optimize my cash flow so I don’t have to rely on my retirement accounts too early or deal with restrictive tax strategies like Rule 72(t), which I find too rigid.
• Long-term sustainability: I recognize that my pension alone isn’t enough to meet my income goals, so I need a tax-efficient strategy for supplementing it.

Potential Paths Forward

Here are some options I’m considering:

• Increase taxable savings by continuing to work and saving aggressively, allowing for easier access to funds before 59½.
• Roll my 457b into an IRA and implement a Rule 72(t) strategy, despite its rigidity.
• Continue working at least part-time after my pension begins, either at my current job or seasonally.
• Delay moving into my own apartment for an extra year to bolster my taxable savings.
• Withdraw slightly more than the 4% rule suggests in the early years of retirement and adjust spending later if needed.

Leverage seasonal or short-term work (such as holiday retail jobs) to fill income gaps.

I would love to hear your thoughts on the best way to structure my withdrawals and income flow while maintaining flexibility and avoiding unnecessary taxes. If there are strategies I haven’t considered, I’d appreciate your insights.

Thank you for your time, and I appreciate any advice you can offer!

Best regards,

Scott’s Reply

Thanks for reaching out, and congratulations on building an (almost) $1 million net worth and the pension. As you noted in your email, that is like having another $900K saved in terms of the purchasing power an inflation-adjusted pension plan can afford you. 

Here are some of my instinctive reactions for you: 

Your $84K/year spending/income goal does not seem reasonable: You list a goal of realizing/spending $84K per year (5X $1200 monthly rent). Currently, you earn $31,000. Your peak income in 2021 was $61,000. Why do you want to suddenly spend $84K per year?

If that’s really the goal, then I’d push you to get a second job or moonlight, make an aggressive real estate play and/or house hack, and assume you are still at least five to 10 years from your goal. 

I don’t think that’s your reality, and I’d encourage you to really think long and hard about why you chose that $84K number. I don’t think you need that much. 

I’d wonder, instead, if your number is much closer to $50K or less, and the game is already won, even if you decide to allocate a portion of that to your friend’s situation.

I’d push back and encourage you to consider NOT moving out now. In your situation, why not do the “slow travel” thing starting in August? You have no housing expense now. You want to travel for a month at a time. 

Why inject a $1,200-per-month drag on your expenses when you have the advantage of not having to do that? If you simply keep your permanent address at your family member’s house for another year or two, you could potentially spend seven to 10 months traveling, really kicking off your retirement in style when the pension kicks in. 

Once you are done with the slow travel, then, of course, I completely understand the desire to move into a solo apartment. But I think that signing a lease immediately prior to doing monthlong stays in exotic locations makes little sense to me in your situation.

Can the decision to withdraw from the 457 wait until 2026, making the challenge of “bridging” to age 59.5 much easier? You asked about a bridge to 59 1/2. I think that this bridge will be far less than you anticipate and that you can postpone having to bridge any of that access for perhaps the first year following the payout of your pension.

For example, I think that there is a reasonable probability of the following happening:

• You work hard for 2025 through August and the beginnings of your pension.
• You may even do some side hustles or moonlighting to pick up a few extra hours, knowing that the game is almost over and retirement is right around the corner.
• You stockpile all this extra cash you accumulate in 2025 into your savings account. 
• You begin the “slow travel” year with $65,000+ in your savings account AND $3K per month in pension income. 
• You have no need to touch the money in your 457 until a year has passed, you have traveled to several interesting places, and you have finally decided where you want to settle down/rent long-term. 
• You may even find the ability to make a few thousand dollars per year, during your travels or in your retirement, in a highly agreeable way to incrementally defray/defer the need to access money in the retirement portfolio.
• From there, you will have a much clearer line of sight (and likely need a smaller bridge) into how much you need to pull from the retirement accounts to supplement your income and bridge to traditional retirement.