As you get closer to retirement, where you save is almost as important as how much you save, particularly if you’re retiring before age 59 1/2 or 65. Why? Because if you plan on retiring before 59 1/2, or even before 65, you may wish to have money saved somewhere besides your retirement accounts. This article explains where to save when you’re 10 years out from retirement.

Retirement Pre 59 1/2

At age 59 1/2 you can access your individual retirement accounts without penalty, 55 if you’re using the rule of 55 for 401k or 403b withdrawals. If you retire before 59 1/2 and aren’t using the rule of 55, you may incur a 10% penalty for withdrawals from IRAs. Depending on your income need, that can be an added retirement expense that you weren’t counting on. Another expense you may not be counting on is healthcare.

Retirement Pre 65

If you retire before age 65 without medical retirement benefits, you may need to get a policy in the Marketplace. How much you pay for that policy depends on your modified adjusted gross income or MAGI. Depending on where you saved for retirement, your MAGI may be higher or lower. IRA, 401, or pre-tax withdrawals need to account for taxes too.

$100,000 Retirement Income Example

IRA withdrawals – If your income need is $90,000, and you’re withdrawing from your IRA or 401k, you may need to withdraw $100,000 to pay federal and state. In Michigan your total federal and state tax bill would be $12,053 MFJ. A $100,000 income will most likely not get you many ACA subsidy premiums.

Taxable Investment Account – If you have money saved and invested in a taxable trust or joint account, you pay capital gains tax on the gains. Depending on how well your investments have done, you may show a much lower income. A $45,000 capital gains would mean that you invested $45,000 and it grew 100%. You withdraw $90,000 and you only show a $45,000 capital gain on your tax return. For a couple MFJ you are in the 10% tax bracket which taxes capital gains at zero. Because you only need $90,000, you still have $10,000 growing and your $45,000 MAGI may qualify you for ACA subsidies.

Tax Planning

In the above example, you can see where a good financial plan will guide you to be tax diversified with your investments. If you go through a bear market like we did in 2022, you may show little or no gains. While that is usually not a good thing when investing, it can be good for showing lower taxes. If you captured losses during the down market, you can carry these on your tax return until they’re used. They may be used to lower your income in retirement.


If you’re planning on retiring in the next 10 years, you might want to have a plan. That plan should include investing in places outside of your IRA or 401k. We didn’t even begin talking about Roth’s. But you can see the point. Retirement planning is a little more complicated when you’re retiring before age 59 1/2 or even 65.

Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.