Creating a Financial Bridge with Early Retirement: Leveraging the 457(b), Pension, and Roth Assets
You’re a municipal employee dreaming of early retirement, envisioning a life of freedom, adventure, and time with loved ones.
You’ve worked hard, contributed to your pension, and maxed out your 457(b) plan. On paper, it seems like you’ve done everything right. Yet, a lingering question haunts you:
How do you financially sustain yourself between your early retirement date and the moment your pension and Social Security kick in?
Without proper planning, this gap can feel like a financial canyon—and crossing it without a strategy may force you into unnecessary debt or a compromised lifestyle.
This is a challenge many face. The good news? With the right combination of the 457(b), pension, and Roth accounts, you can create a seamless financial bridge to carry you through this critical period.
The Reality
I remember working with a municipal employee named Mike, who retired at 50 after dedicating 25 years to his community. He was eligible for his pension at 55 and Social Security at 62, but he couldn’t touch either without penalties before those milestones. Mike had diligently saved in his 457(b) plan and Roth 457, but he wasn’t sure how to use these accounts to sustain his family in the interim.
When we first sat down, Mike was overwhelmed. “I don’t want to go back to work,” he said, “but I also don’t want to burn through my savings too quickly.” Together, we mapped out a strategy to draw from his pre-tax 457(b) penalty-free, leaving his Roth 457 to continue to grow tax-free, and coordinate his pension for maximum benefit. Today, Mike’s financial bridge is strong, and his early retirement is everything he dreamed it would be.
This is a scenario I encounter often. Each person’s bridge looks slightly different, but the principles remain the same.
Before diving into the strategy, let’s clarify key components:
The retirement gap refers to the period between your early retirement and the time when pension or Social Security benefits become available. Closing this gap requires careful planning to avoid depleting your savings prematurely.
What Should I Do?
Assess Your Timeline
Start by identifying the length of your retirement gap. Calculate the years between your planned retirement date and when your pension or Social Security will begin.
For example:
- Retirement age: 50
- Pension eligibility: 55
- Social Security eligibility: 62
Your retirement gap: 5-12 years.
Build Your Emergency Fund
Before creating a withdrawal strategy, ensure you have a robust emergency fund. Aim for a couple months of essential expenses in an accessible high-yield savings account. This protects you from unexpected costs and reduces reliance on retirement accounts incase of a market drawdown.
Maximize the 457(b) Plan
The 457(b) plan is your first line of defense in early retirement. Here’s how to use it effectively:
- Contribute aggressively while working: The 457(b) plan allows high contribution limits. If you’re nearing retirement, consider using the “Catch-Up” provision to supercharge your savings.
- Create a withdrawal plan: Once retired, withdraw from your 457(b) penalty-free to cover your living expenses. Work with a financial advisor to calculate a sustainable withdrawal rate that aligns with your needs and investment performance.
Coordinate Pension Timing
Evaluate your pension options carefully:
- Early pension withdrawals: If your plan allows reduced benefits for early access, weigh the trade-offs. Will this impact your long-term financial security?
- Deferring benefits: Waiting until full eligibility often results in higher monthly payments. Calculate whether bridging the gap with your 457(b) and Roth 457 makes deferral worthwhile.
Reevaluate Annually
Life changes, and so do financial markets. Regularly revisit your bridge strategy to ensure it remains aligned with your goals:
- Adjust withdrawal amounts based on market performance.
- Monitor expenses to ensure your budget remains sustainable.
- Stay informed about tax laws that could impact your accounts.
Planning for early retirement is a rewarding but complex journey. The 457(b) plan, pension, and Roth IRA are powerful tools, but their true strength lies in how you coordinate them. By identifying your retirement gap, building an emergency fund, and creating a tailored withdrawal strategy, you can bridge the financial canyon with confidence.
But financial planning doesn’t stop there. Regular reviews and adjustments ensure your strategy evolves alongside your life. Therefore, instead of fearing the gap, you can embrace early retirement with the peace of mind that your bridge is secure.
If you’re ready to create your personalized early retirement plan, we are here to help. As financial advisors specializing in 457(b) plans and municipal employees, we have guided countless clients through this process.