If you’re on the road to your Number – let’s say it’s $2 Million by the time you are 35 – and that milestone is well before your retirement accounts vest, you have a real trade-off to make:
1. Put that money that you would have otherwise invested in a 401k/IRA/etc. to work for you now to help you get to your Number, or
2. Keep socking money into your retirement account as a ‘safety net’ in case you fail.
The ideal strategy is actually 2., as you should always ‘insure your future’ …
And, some would say that you should keep socking that money away until you have something concrete to use your money for and then you can always pull your money out of your retirement account if you need to.
But, there’s the issue of taxes and penalties on early withdrawal, right?
Speaking of Motley Fool’s mastery of the sensational headline, I thought that I had found an easy solution for you when I saw this headline on their site: Tap Your IRAs to Retire Early. Unfortunately, it was only a ‘funnel’ into a pretty boring article that tells you that you can withdraw a couple of percent of your IRA each year, earlier than your standard retirement age.
Not much use to an aspiring multi-millionaire!
If you do what I suggest:
1. Implement sound MM101 strategies (save 15% of your gross income via 401k/IRA’s/etc.), as well as 50% of any ‘found money’ (lottery winnings. tax refund checks, inheritances, etc.)
3. Increase your income (and save 50% of any such increase) through a second job etc.
… then you will probably have the ‘capital’ saved as cash (or in ‘spare equity’ in your own home) to start the types of businesses that I suggest that you start (eg low cost – perhaps internet – businesses) or to slowly start investing in real-estate without needing to ‘tap’ your 401k.
This is the ideal … but, if your business should be growing and you need the funds to expand further, then you may be left with some unsavory alternatives:
1. Hock the house, cars, children
2. Find a partner to invest in your business
3. Raid your retirement accounts
I’d probably go for 1., then 2., then 3., or maybe 3., then 1. then 2. – or maybe I’d put the partner second (never first) – but, I’m not sure. It all depends on circumstances … which we’ll have to explore further in future posts.
In the meantime, which would you choose?