It’s an assumption, not a historical citation.

The default 2.5% IRS income level adjustment, can you provide the historical data that you pulled that from?

thanks in advance!

Correct. This view is more conservative, so if you get social security, it’ll be an additional buffer.

It’s hard to say whether executing a SEPP using that strategy outweighs letting the money compound over the years in your tax-deferred account.

It depends on:

1. How early you retire
2. Whether you have other income sources available to you
3. How much money you need to support your lifestyle
4. How much you have saved in your tax-deferred accounts right now

Other things being equal, the earlier you retire, the less compounding your tax-deferred account would have. Which means the opportunity cost of taking the money out early is higher.

Other things being equal, if you have other income sources available, then it makes sense to spend that money (and fill up your deduction allowances) first before touching your tax-deferred accounts.

If you need a lot of money to support your lifestyle and will take a tax hit either way because you exceed your deduction allowances, then it *may* not be advantageous to do SEPP because you lose the compounding and are going to get taxed anyway. It’s not entirely clear because it also depends on what your tax rate is when you withdraw the money; at a minimum it requires doing analytical calculations to be sure.

If you have a lot of money saved in your tax-deferred accounts, say, through a consistently maxed out Solo 401k, then you may feel less “pain” in old age by doing SEPP as an early retiree. However, if you don’t have a lot saved up, and you do SEPP early in life, then you may not have much left (or anything at all) by the time you reach senior status.

With the recently passed new tax bill, which doubles the standard deduction, doing a SEPP strategy may be more attractive because the deduction allowances are higher before taxes are owed. However, the deduction allowances, at least as currently legislated, will expire in 2025, so it’s not presently a long-term guarantee.