What’s the Best Bridge Account for Early Retirement?

The faster 26.2 has a question for you. No marathon runner, apparently his real name is Brian, though he says “fellow Brian” here, so hi, Brian with a Y, different kind of Brian. Anyway, he says, “Wife and I are debt-free plus our home and are looking to retire early in 15 years. Are there any options besides a high-yield savings account to bridge between ages 52 to 59 and a half?”

Yes, I mean, that’s kind of a loaded question. You know, because, by the way, you can get two retirement accounts if you annuitize them. Sure, there are options, and certainly between 52 and 59 and a half. I mean, even if you work for a normal employer and you have a 401k, but you retire in the year that you turn 55, you can still access those dollars. But here’s where I think his question really is, or this is where I think the question really is coming in. I have my money in a high-yield savings account. Is that really the only option, or is there something else I can be doing to build a bridge account? I think that’s really the crux of it. Like, I just have my money sitting in cash. It seems like I’m wasting it. I’m not letting it do anything for me. Might there be something else? If retirement’s 15 years away, but it’s going to be before I hit 55 or 59 and a half, where should I park some dollars to go to work for me? I mean, I feel like we haven’t done it enough in this Q&A session. So I’ll use this as the opportunity to talk about the financial order of operations. And one of the key things we talk about in Step seven of hyper-accumulation is your three buckets. Your taxable brokerage accounts or your after-tax buckets, you’ve got your tax-deferred, which is all your employer matching or historically employer matching. And then you got your tax-free Roth buckets, which are growing without ever paying taxes on them. So, Bri, what Bo is just alluding to is, assuming you’re now at the step seven, we love for bridge accounts, especially for somebody who thinks they’re part of FIRE and going to retire early. Why not fund a brokerage account, whether it’s a joint account or an individual brokerage account? And you can actually invest just like you can in your 401k at work, just like you can in your Roth IRA. You can fund a taxable investment account by index funds, by index Target retirement funds, and let it rip. And here’s the great thing. These things don’t have funding limits, meaning that you’re not capped at, like, $23,000 a year. You can fund them up to the moon and beyond. They don’t have early penalty withdrawals. And tax rates, they also, I mean, now you have to have really low income, but they have zero capital gains if your income’s super low, maybe in those early retirement years. There’s also 15% dividends, 15% capital gains. I mean, there’s a lot of tax. That’s what you meant by tax-favored. That’s, I don’t know why you went to zero all of a sudden, but, you know, I’m giving them all, giving them all the flavors. You know, we’re like Baskin Robbins over here. But it is one of those things we love taxable brokerage accounts. I think a lot of people fall into the trap of, after they load up and max out their employer retirement plans or their Roth IRA, like, “What do I do now? I have all this cash.” You can set up a brokerage account and start investing in that. And those accounts are really fascinating to me. I know, for wealth-building purposes, there’s get-wealthy behaviors, there’s stay-wealthy behaviors. I like after-tax brokerage accounts because, um, when I’ve had real estate opportunities and other things, that account is somewhere that I can… Yes, I have to go pay capital gains taxes on anything that’s appreciated in there, but it’s an easy place to go get access. So I’m not retirement-rich but life-poor and opportunity-poor by not having that bridge account built up. What I love, though, is even if you are doing the taxable brokerage account, there’s even a way you can tax-manage it through time. If you’re doing loss harvesting during volatile periods, and if you’re someone who’s charitably inclined and you’re implementing a charitable giving strategy, there are ways that even though you’re investing those dollars and even though that account is growing, you can still have access to your capital without triggering a substantial amount of taxes. Now, that might not always be the case as the account gets bigger and bigger, but if you’re doing the things that we talk about on the show all the time, it’s not incredibly difficult to get access to those funds. And it’s a great place that will allow potentially even future planning opportunities. So let’s say that you do retire early and you’ve built up your after-tax account enough that not only can it provide your bridge account money, but you may also start doing Roth conversions or that kind of thing where you can manipulate the tax code to your benefit. These are all the kinds of things you ought to be thinking about if you are looking at early retirement, if you are thinking about moving into the financial planning threshold. If you are someone who that sounds like you, this might be a great time to think about taking the relationship to the next level because some of this stuff, it’s not overly complicated, but it’s nuanced. And you want to make sure that you do it right. And most folks only get one hack at going into retirement. So you want to make sure that you measure two, three, four, five, six, seven, eight, nine times before you implement some of these strategies. And it might be helpful to have a co-pilot go on that journey with you. So if you sound like someone who might be interested in that, I’d encourage you to check out the website, go to boundwealth.com, work with us. You can check out moneyguy.com, work with us. And we’d love to figure out how we could be a part of your financial journey. Well, I love what you just said because it is so one of my favorite things is working with people approaching retirement or even entering into retirement is because that is when the heavy lifting occurs. That’s when Roth conversion discussions happen. That’s when we talk about that 0% capital gains. That’s when we talk about social security and its taxability. We talk about Medicare premiums and how you make sure you don’t run up into those different tiers where it’s more expensive. All those things work together. And just what Bo just shared, this is not individually these components are not overly complex, but it’s just since they all integrate, you have to integrate them all. It becomes exponentially harder even though these are a bunch of simple things when you try to bring it all together. And that’s why you only get one retirement. We’ve worked with hundreds, soon to be thousands on retirement. Why not you know, lean into that experience.