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February 28, 2022

How to Create an Early Retirement Bridge Account

Man walking across bridge

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Interested in FIRE and retiring early? Well, you might need a bridge account that helps fund your lifestyle from early retirement to traditional retirement.

To help us with this intricate plan, I've invited The Landshark to today's podcast. This anonymous former lawyer retired early at 43 and used a bridge account to make it possible. 

We discuss the details of his FIRE bridge account and how you can make one too. The Landshark–and the early retirement strategy he shares–may be just what you need to start crafting your plan for family financial independence.

The Problem With Traditional Retirement Accounts

Roth IRAs, traditional IRAs, 401ks and 403bs are all-powerful retirement vehicles. There's just one problem. Virtually all of the traditional retirement accounts charge a steep penalty if you try to tap them early. That means that if you make withdrawals before you are 59 1/2 years old, you are going to face a 10% penalty. That's on top of any taxes that you may owe (depending on the type of account, of course!).


Does that mean that early retirement is off the table? Not at all. There are several ways you can fund your early FIRE years penalty-free. Let's learn more!

The Bridge Account to FIRE with a SEPP Strategy

SEPP–more formally known as Substantially Equal Period Payments–are one way that some people bridge the gap between their early retirement date and the traditional retirement age.

To show how it works, Landshark says to envision yourself at 50. You want to retire early, but you have almost 10 years to wait before you can touch your IRA without facing that 10% penalty. That's where SEPP might help.

SEPP allows you to take a certain amount of money out of your IRA as long as you remove it in equal installments. So that 50 year old could use SEPP to bridge those 10 years.

Now you might be wondering why doesn't everyone do this? There's a catch–actually, there are a few!

Landshark says there is a lot to consider. To qualify as a SEPP, you have to make the withdrawals for at least five years. Additionally, you can't stop the withdrawals once you start them. That means that you lose quite a bit of flexibility, especially in the event of a market downturn. Another big issue with pulling from your traditional retirement accounts early is that it means there will be less money in them when you reach traditional retirement age.

But you're still not stuck. Landshark says there is an even more effective bridge account strategy, and it's the one he used himself.

Using a Taxable Brokerage Account as a Bridge Account to FIRE

Landshark retired early at the age of 43. He left behind both a law career and the hefty salary that came with it as a partner.

He and his wife were always aware of how quickly time passes, especially as their young kids started to grow. Then, the pandemic magnified this feeling for them.

Landshark found himself working remotely. Without juggling a commute and some of the other time-sucks that come from traditional office work, he realized he could eat breakfast with his kids, take them to school, and pick them up. He and his wife knew these things were too important to stop.

So they crunched the numbers and realized early retirement was a possibility.

Though he has over 15 years before he can tap into any of his traditional retirement accounts penalty-free, he's not worried. That's because Landshark and his wife set up a taxable account to use as their bridge account to FIRE.

When he finally retired, Landshark says that he and his wife had over a million dollars in his taxable account. It's a jaw-dropping number, and Landshark is quick to point out it's because there were years when they pulled in half a million dollars in income!

Another secret to his success, he says, is mortgage freedom. He says that being mortgage-free was like pouring jet fuel on his taxable account.

Every month they no longer had mortgage payments, they could send all of that cash flow straight to their brokerage account. As the account grew, he felt himself growing closer and closer to the moment that he could reclaim ownership of him time and retire early.

That's sound pretty awesome, right? But maybe you feel like this isn't in the cards for you. Landshark says many people can learn to make taxable accounts work for them starting with these straight forward steps.

Building a Bridge Account at 40

Imagine you are 40 years old and seriously contemplating early retirement. You know that a bridge account will get you there. But how do you get started? Building a bridge account is simpler than you think.

Landshark says the first step to building a bridge account is to track your spending through a budget. The goal isn't curb your spending. Instead, you want an accurate picture of what you spend from month to month.

Afterwards, you want to craft a budget for savings. Determine what you can afford to send to your taxable brokerage each month. Then, automate those transfers to make sure you continue to set money aside.

Landshark invests in low fee, broad-based index funds, as do many FIRE hopefuls. But he stresses making sure that you invest in something you are comfortable with and that matches your goals.

Once you get this system in place, you want to maintain it over time. Landshark says that you will watch your taxable balance snowball, growing faster than you imagine. Soon, you will put together a solid nest egg separate from your retirement accounts. By doing this, you are creating another bucket to cover part of your financial future.

Final Thoughts Building a Bridge Account to FIRE

The concept of FIRE has never been more captivating. In a post-lockdown world amidst the Great Resignation, so many people are reimaging their lives, including their work!

But perhaps one of the biggest hurdles people face is figuring out how to fund their lifestyles. That's where bridge strategies like SEPP or taxable brokerages come into play. If you're interested in setting up a taxable brokerage as a bridge account, platforms like M1 Finance make it easy.

You can crunch the numbers and follow the steps Landshark outlined to starting inching yourself closer to early retirement today.


Guest Bio – The Landshark

Financially independent Landshark who hates debt, saves aggressively, and invests in index funds. He retired recently from a career practicing law.

Resources – The Landshark

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Carpe Diem Quote

The stock market is a device to transfer money from the impatient to the patient.

 Warren Buffett

Are you looking to create an early retirement bridge account?  What do you think of the advice from The Landshark?

Please let me know in the comments below.

Andy Hill

Andy Hill is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping young families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and watching Marvel movies.

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The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

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