54-Year-Old With $4 Million in 401(k) Can Retire Early Using Rule of 55 Strategy

"With a balance that large, you are in an extremely strong position financially and could reasonably consider retiring now. You would need your money to last longer than someone who retires in their 60s, but a 4 million dollar nest egg gives you a wide safety margin to make that possible. The challenge comes from having all of your savings inside a 401(k). Retiring at 54 and immediately withdrawing funds could trigger early withdrawal penalties and increase your tax burden."

"The encouraging news is that you may not need to wait until 59 and a half to access your savings. Depending on your situation, you might be able to withdraw money without penalties beginning in 2025. This option comes from a lesser-known provision called the rule of 55. It allows penalty-free withdrawals from a 401(k) if you leave your job during the calendar year you turn 55 or any year after that."

As of 2025 the average 401(k) balance for Americans in their 50s is about $490,000, making a $4 million balance roughly eight times higher. A 54-year-old with $4 million could reasonably consider retiring now, though the savings would need to last longer than for someone retiring in their 60s. Having all savings inside a 401(k) creates challenges: withdrawals before age 59½ typically incur a 10 percent early withdrawal penalty and increased taxes. The Rule of 55 allows penalty-free 401(k) withdrawals if employment ends in the calendar year the individual turns 55 or later. Careful withdrawal timing, tax planning, and account structuring can enable early retirement.

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