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Retiree reevaluates 401(k) overinvestment’s impact on liquidity

Retiree Overinvestment Impact
Retiree Overinvestment Impact

Eric Cooper, now retired, believes he may have invested too much in his 401(k) during his working years, leading to a decrease in available cash. Despite having an impressive $2.4 million in his retirement fund, Cooper found this investment strategy impacted his liquid assets to the point he reconsidered his financial strategies.

Cooper’s financial security was established in his early twenties when his employer advised him to invest in his 401(k). He added substantial contributions to the plan almost annually during his 25-year professional career, resulting in a comfortable financial safety net upon retirement.

With financial stability, Cooper had the freedom to be charitable. He involved himself regularly in community service projects and fundraising events, contributing not just money but time and resources. Cooper also used his financial independence to travel and explore various parts of the world.

Despite being retired, Cooper mentors young professionals on the importance of financial planning, and he sees his strategy of excess saving as flawed.

Balancing 401(k) investments for greater liquidity

He has said, “I put so much into my 401(k) that once I retired, I realized I hadn’t left much in my trading account or easily accessible funds”. This has taught Cooper the importance of well-rounded financial planning.

Thanks to a specific IRS ruling, Cooper can withdraw $20,000 annually without any penalty to avoid the 10% penalty for premature withdrawals from retirement accounts. He advises others to do the same to preserve their hard-earned savings.

In 2019, Cooper reviewed his financial plans and decided to invest in different options such as stocks, bonds, and real estate. Despite challenges, he has aggressively saved and invested, determined to improve his financial trajectory.

Between 2019 and 2021, Cooper reduced his retirement funds while increasing his savings and trading account investments. He also leveraged his real estate assets, diversifying his income sources and creating financial resilience.

Cooper highlights the importance of Section 72(t) of the IRS code, which now allows him to make regular, penalty-free withdrawals from his retirement fund, increasing his annual income by $20,000.

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