The Rule of 55: One Way to Fund Early Retirement
The little-known rule of 55 lets you access your retirement funds early. When paired with other strategies, it could help you kiss the office goodbye.


Editor’s note: "The Rule of 55" is part eight of an ongoing series focused on how to retire early and the FIRE (Financial Independence, Retire Early) movement. Part One is How to Retire Early in Six Steps. To see all early retirement articles, jump to the end.
The kids may really be alright. Young professionals today seem to be taking retirement more seriously than ever. According to a 2025 survey by Northwestern Mutual, the average Gen Zer and millennial start saving for retirement in their 20s, compared to Gen Xers and baby boomers, who typically began in their 30s.
Access to more personal finance advice certainly helps, but a key motivator is the desire to retire earlier. A YouGov poll found that 30% of millennials expect to retire between the ages of 51 and 60.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why the rush? Much like the workplace and career paths, younger generations are redefining retirement. An Edelman Financial Engines report found that nearly four in 10 Americans want a retirement that looks different from previous generations, with many prioritizing an “active” and “adventurous” lifestyle.
Early retirement means you’re more likely to have the health to pursue activities like travel and volunteering abroad.
But here’s the catch for those looking to retire early: funds in 401(k)s or similar tax-deferred plans typically can’t be accessed without penalties before age 59½.
That’s where the rule of 55 can help. It lets you start taking distributions from your 401(k) penalty-free a little earlier. Here’s how it works — and how it could help fund an early retirement.
What is the Rule of 55?
The rule of 55 is an IRS provision that allows you to withdraw money from your 401(k) or other qualified retirement plan without the 10% early withdrawal penalty if you leave your job in or after the year you turn 55.
This can be a valuable tool for those who want to retire early but don’t want to face hefty penalties for accessing their savings.
Additionally, Joli Fridman, CFP, CPA/PFS, and wealth adviser at Buckingham Strategic Wealth, points out that it’s helpful to “employees who retire earlier than planned, such as for health reasons or losing a job.”
How the Rule of 55 works
To qualify, you must leave your job — either voluntarily or involuntarily — in or after the year you turn 55.
Fridman emphasizes that “the rule applies only to the 401(k) plan of your most recent employer.” This means that money in other retirement accounts must stay put until you reach age 59½ if you want to avoid the early withdrawal penalty.
“If you roll over your funds to an IRA or a new employer’s plan, you lose the ability to use the rule of 55,” adds John Chapman, CFP® at WorthPointe Wealth Management.
For example, if you leave your job at 55 and keep your funds in your employer’s 401(k), you can start withdrawing from that account without penalty. But if you roll those funds into an IRA, you’ll have to wait until age 59½ to access them without a penalty.
While the rule helps you avoid the penalty, it doesn’t exempt you from taxes. Any distributions you take will be taxed as ordinary income.
Planning for withdrawals
Before tapping into your 401(k) under the rule of 55, Chapman recommends contacting your plan custodian to confirm the withdrawal rules and ensure your separation date is correctly documented.
He also notes that once you start taking withdrawals, the money you remove will no longer benefit from future growth and compounding, which could impact your long-term retirement goals.
So, how much should you withdraw? That depends on your situation, says Ryan Theisen, CFP® and financial adviser at Advance Capital Management. A 4% withdrawal rate is a reasonable starting point, he says, “but it can be okay to go above this for a couple of years if it comes back down once Social Security kicks in.”
While this strategy can provide penalty-free access to your 401(k), it’s not a magic solution for early retirement. Chapman advises that investors should still have a solid financial foundation, such as being debt-free and accumulating a healthy emergency fund, before considering this option.
Considerations for early retirees
If you plan to retire early, the rule of 55 can be a helpful tool, but experts caution that it shouldn’t be your only strategy. To increase your flexibility, consider having multiple sources of income, such as a non-retirement brokerage account or cash savings, which allow for penalty-free withdrawals at any age. You should plan for early retirement income over the long haul, not just the first few years of retirement.
As Chapman notes, “One common mistake is relying too heavily on a 401(k) without building other savings.” This could leave you “401(k)-rich but cash-poor,” limiting your access to funds if you retire early. Regular contributions to a brokerage account alongside your 401(k) can provide greater liquidity and flexibility down the road.
Special consideration should also be given to public safety employees, such as police officers, firefighters, EMTs, and air traffic controllers. Essentially, the rule of 55 applies to these workers in the calendar year they turn 50.
How the Rule of 55 compares to other early withdrawal options
Depending on your financial situation, other strategies may make more sense for accessing retirement savings early.
One alternative is a Roth IRA, which allows you to withdraw your contributions – though not earnings – at any time without taxes or penalties. Unlike the rule of 55, there’s no need to leave your job or stay in an employer plan to take advantage of it.
Another option is setting up substantially equal periodic payments (SEPP), also known as 72(t) withdrawals. This IRS rule lets you take penalty-free withdrawals from an IRA or 401(k) before age 59½. But there’s a catch: once you start, you’re locked into a fixed withdrawal schedule for at least five years or until you reach 59½, whichever comes later. That lack of flexibility makes it a better fit for those who need reliable income and are confident they won’t change course.
“The closer someone is to age 59 ½, the more practical the Rule of 55 becomes compared to 72(t),” says Theisen. “With 72(t), you’re committing to five years of fixed withdrawals, which may not make sense if you only need to bridge a short gap to traditional retirement age.”
Is the Rule of 55 right for you?
The rule of 55 offers a unique benefit, but it’s just “one piece of the retirement puzzle,” says Chapman.
Fridman adds that workers planning an early retirement must still consider other key factors, such as when to claim Social Security, how to take pension payments, and how to make efficient withdrawals from investment accounts. “The best strategy,” she advises, “is to work with a financial adviser who can help determine the best plan for your situation.”
After all, early retirement is about more than avoiding penalties — it’s about making your money last.
Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.
Read More about Early Retirement
- How to Retire Early in Six Steps
- How to Retire at 40
- How to Retire at 50 or 55
- Retire Early for Adventure: Go Travel and Volunteer
- Will Retiring Early Make You Happier? It's Complicated
- Early Retirement Withdrawal Strategies for the Long Haul
- Five Early Retirement Mistakes to Avoid
- A Sabbatical May Be a Smarter Move Than Early Retirement
- How SEPP 72(t) Can Help You Retire Early and Dodge Penalties
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jacob Schroeder is a financial writer covering topics related to personal finance and retirement. Over the course of a decade in the financial services industry, he has written materials to educate people on saving, investing and life in retirement.
With the love of telling a good story, his work has appeared in publications including Yahoo Finance, Wealth Management magazine, The Detroit News and, as a short-story writer, various literary journals. He is also the creator of the finance newsletter The Root of All (https://rootofall.substack.com/), exploring how money shapes the world around us. Drawing from research and personal experiences, he relates lessons that readers can apply to make more informed financial decisions and live happier lives.
-
A 'Fast, Fair and Friendly' Fail: Farmers Irks Customers With Its Handling of a Data Breach
Farmers Insurance is facing negative attention and lawsuits because of a three-month delay in notifying 1.1 million policyholders about a data breach. Here's what you can do if you're affected.
-
Serving the HNW Market: How Financial Advisers Can Break Through and Deliver Lasting Value
Financial advisers have a significant opportunity to serve high-net-worth clients by elevating their capabilities, delivering comprehensive planning, building diverse teams and prioritizing family wealth education.
-
Five Retirement Planning Traps You Can't Afford to Fall Into, From a Wealth Adviser
To help ensure you reach your savings goals and enjoy financial security in your golden years, be aware of these common pitfalls. The key is to be proactive, informed and flexible.
-
Your 401(k) Can Now Include Alternative Assets, But Should It? A Financial Adviser Weighs In
Many employer-sponsored plans offer limited investment options, which can stunt growth. But participants considering alternatives might need some sound advice to get the most from their accounts.
-
Will Taxes Shred Your 401(k) or IRA During Your Retirement? It's Very Likely
Conventional wisdom dictates that you save in a 401(k) now and pay taxes later, but turning that rule on its head could leave you far better off. A financial planner explains why.
-
More Retirees Are Renting: Should You? A Financial Adviser Weighs In
In some ways, renting is cheaper, more flexible and easier, but unless you understand the implications for your taxes and health costs, it might not be for you.
-
Where There's a Will, There's a Way Your Assets Will Be Distributed as You Wish
Your will is the backbone of a strong, adaptable estate plan that ensures what you leave behind goes to your selected beneficiaries. Without a will, state laws determine who gets your assets.
-
I'm a Financial Adviser: This Is What You're Really Losing if You Cut Back on Your 401(k) Contributions
Missing out on the benefits of the employer match and compounding growth could force you to work longer and lower your standard of living in retirement. Here are some alternative options.
-
Preferred Bank Stocks: The Investment Retirees (and Others) May Be Missing Out On
Most large banks issue preferred stocks that pay out fixed dividends, often with higher yields than bonds. Should you make room for them in your portfolio?
-
You're High-Net-Worth: Should Your Retirement Savings Be in a Swiss Bank?
Swiss banks have long been a haven for the wealthy. Here's how to safeguard your retirement account in a Swiss bank — and whether you should.