How Roger Can Retire at 55: Smart Asset Allocation, Taxes, and Lifestyle Planning
When you’re 54 with $2.8 million in assets, the idea of retiring at 55 isn’t just a dream it’s a very real possibility. Roger, a soon-to-be retiree, has spent years preparing, and his financial blueprint offers lessons for anyone looking to balance spending, investing, and tax planning on the way to a secure retirement.
Roger’s Retirement Strategy
Roger has built a solid financial foundation: $1.9M in his 401(k), $280K in a traditional IRA, $220K in a Roth IRA, $300K in cash, $50K in a brokerage account, and another $50K in an HSA. He plans to live on $110,000 annually from 55 to 65, funded partly by $50,000 in deferred compensation and supplemented by his wife Jane’s income and consulting work. To fund extras like travel and cars, Roger will withdraw up to 2% annually from his 401(k).
From 65 to 75, he plans to increase spending to $210,000 for his “go-go years” before scaling back to $110,000 in later retirement. With Social Security expected to add $54,000 per year, his spreadsheets suggest he’ll finish retirement with a healthy surplus.
Asset Allocation and Diversification
Roger currently keeps his retirement accounts 100% in equities, which may be too aggressive this close to retirement. While equities provide growth, diversification can reduce risk and protect assets he plans to draw from in the near term. Advisors recommend shifting some funds into safer asset classes and using a “bucket strategy” for short-term withdrawals.
He’s also considering redirecting some 401(k) contributions to his Employee Stock Purchase Plan (ESPP). While the 15% discount makes the ESPP appealing, concentrating too heavily in company stock poses risks. Diversification remains key, especially as retirement nears.
Tax Implications and Roth Conversions
Much of Roger’s wealth sits in pre-tax accounts, which could create large required minimum distributions (RMDs) later. A phased Roth conversion strategy could help him build tax-free income while avoiding a higher tax bracket. Instead of large lump-sum conversions, spreading them over multiple years can maximize efficiency and reduce long-term liabilities.
Spending Discipline and Retirement Lifestyle
Roger’s plan to spend more in early retirement and scale back later makes sense, especially since health and activity levels often decline with age. His willingness to track spending carefully with spreadsheets shows discipline and flexibility two traits that make retirement plans more resilient. Downsizing his home and eliminating his mortgage will also free up cash flow and reduce long-term obligations.
The Bottom Line
Roger’s story highlights three crucial lessons:
- Diversify as you approach retirement. A 100% equity allocation may be too risky when withdrawals begin.
- Use Roth conversions strategically. Gradual conversions can provide tax-free growth and flexibility later.
- Stay disciplined but flexible. Retirement plans work best when they’re based on realistic spending goals and can adapt to market conditions.
With careful adjustments, Roger isn’t just ready to retire at 55, he’s positioned to thrive.
Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
