Help Me Retire: I want to leave my job and tap into my $2.1 million 401(k) plan at age 55 — should anything stop me?


Dear MarketWatch:

I am a current federal employee/IT manager and just don’t want the stress and headaches of that type of work anymore. If I leave in January 2024 — the year I turn 55 — I will have 26 years of service and would get 26% of my salary starting in five years as a pension (pension would start at $44,000 and I would get COLAs every year). My wife will continue to work as a teacher while I find something else to do. I plan to use the Rule of 55 to break open my 401(k) — a $2.1 million nest egg — to pay the bills.  

We have another retirement account, an IRA, that is $250,000. We owe about $150,000 on a house worth $600,000.

Finally, we have three kids with one done, one in and one getting ready for college. We saved enough in 529s to almost fully fund college costs.

Any reason not to retire/leave and find something that will make me happier? I feel that my 401(k) balance gives me some options that many people do not have. 

See: I’m 49, have $1.2 million in savings and just lost my job — can I trust the retirement calculators that tell me it’s OK to retire?

Dear reader, 

Before you do anything — anything at all — run the numbers.

You’re absolutely right in that your 401(k) balance gives you options many others do not have, but that doesn’t mean you should tap into it if you can avoid it. For readers unaware, individuals 55 years old or older can take penalty-free withdrawals from the retirement plan of their most recent employer after separation of service, so, yes, you’re correct to say you can break into the account … but do you really want to do that? 

Although $2.1 million is a lot of money, if you intend to take a good chunk out of it every month while you pursue a different job (especially if you’re not sure how long the job hunt will take), you could affect how much you and your wife will have to fall back on when you are no longer able to work. 

That’s why you have to do all the calculations you can possibly imagine. Know exactly how much you intend to take out every month, and figure what that means for you in terms of taxes, covering all of your expenses, paying for any discretionaries and so on. Are you going to try to pay off all of your kids’ remaining college costs, and. if so, is that coming out of your retirement account, too? Determine the very maximum you could be looking to take out of your 401(k) and then estimate the longest time period for which you will be making these distributions. Ultimately, what does that all mean for your account balance? 

Instead of tapping into your 401(k) plan, consider some alternatives. For example, if you had a savings account with a year’s worth of living expenses, the money in your 401(k) plan could continue growing uninterrupted while you look for another job. If you don’t already have a liquid savings account like this, you could try and build one up right now. You mentioned leaving in January 2024, but if you could build a sizable savings account in a short timeframe, would you be willing to stay on the job a little longer to do so? 

This savings account I’m referring to is not the same as an emergency account, which is best kept untouched as well for unexpected issues that could arise, such as a sickness, a home repair, a problem with a car and so on. And you should have a backup plan anyway, should your wife not be able to work after all while you’re still searching for a new job. 

This is not meant to deter you from leaving a job that doesn’t make you happy. Everyone deserves to be happy at work. You’ve done a fantastic job at setting yourself up for long-term financial success. Now you just need to ensure you’ve got yourselves situated for the same thing in the present before making any drastic changes to your lifestyle.  

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at

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