Can You Retire at 55? Early Retirement, Taxes & 401(k)s

Can you retire at 55?

If you’ve watched early retirement videos online, you’ve probably heard the same advice over and over. Save aggressively. Invest in index funds. Follow the 4% rule. Wait for Social Security.

But here’s the secret I discovered after watching those same videos:

If you’re making six or seven figures, following that average advice could cost you millions over your career.

Why? Because high-income earners need a completely different playbook.

In this article, I break down the strategy that helps doctors and other high-income professionals reach work-optional status in half the time—without gambling everything on the stock market.

Let’s unpack what that means and how it applies if you’re asking, “Can I really retire at 55?”

Rather watch than read? Check out this video:

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What Early Retirement Videos Get Right

To be fair, most early retirement content gets a few things right.

First, the income gap.

If you retire at 55, you’ll have a gap of 7 to 10 years before Social Security benefits and Medicare kick in. That means your retirement savings must cover those years completely.

Second, healthcare costs.

Private health insurance before age 65 can easily cost $15,000 to $30,000 per year for a couple, and that’s before deductibles and out-of-pocket medical expenses. Over a decade, that can mean hundreds of thousands of dollars.

Third, withdrawal strategy.

You can’t just start pulling money randomly from your taxable brokerage account, individual retirement account, or 401(k). You need to understand early withdrawals, tax-advantaged accounts, capital gains tax, and how your tax bill will change once your active income stops.

Fourth, lifestyle clarity.

You don’t just retire from something. You retire to something. If you don’t define that, early retirement can feel empty.

Those points are solid.

But here’s where the advice breaks down.

Why Retiring at 55 Is Harder for High-Income Professionals

Most early retirement advice is built for the average American.

It assumes moderate income, steady savings, and a long runway to normal retirement age.

But if you’re a business owner or high-income professional earning $300,000, $400,000, or more, your entire financial life may be built around one income stream.

When you retire early, that income doesn’t slowly decline.

It drops to zero.

That’s the part almost no one talks about.

You go from $400,000 a year to asking, “Where does my cash flow come from until I can touch qualified retirement plans without penalties?”

Yes, the IRS Rule of 55 allows penalty-free withdrawals from certain employer plans if you leave in the year you turn 55. But that doesn’t solve everything.

You still face:

• Taxable income from withdrawals

• Market conditions affecting portfolio value

• Sequence of returns risk

• Healthcare expenses before Medicare

When high earners try to fill that income gap, it can feel overwhelming.

Which accounts do you pull from first?

How do you manage capital gains tax?

What if the stock market drops in the early years?

When people feel overwhelmed financially, they do what most humans do.

They freeze and keep on working.

The Real Risk: Over-Simplified Advice

It’s not that the early retirement videos are wrong.

They’re just oversimplified.

For high-income earners, oversimplification can cost years of extra work.

If you rely solely on retirement savings and a traditional investment strategy, your withdrawal rate becomes your lifeline.

And if you retire at 55 with 30 to 35 years of life expectancy ahead of you, your withdrawal rules must be conservative.

The typical 4% rule may not feel safe when you’re staring at decades of healthcare costs and uncertain market simulations.

This is why I decided to follow a different route that allowed me to reach “work optional” status at the age of 50.

Join the Passive Investors Circle

Step 1: Focus on Building Cash Flow First

Instead of obsessing over how much money you need, start by building cash flow.

Cash flow changes everything.

When your passive income exceeds your living expenses, work becomes optional.

That’s not theory. That’s math.

Rather than relying only on selling assets from a taxable brokerage account or drawing down tax-advantaged retirement accounts, begin creating income streams that pay you monthly or quarterly.

Examples include:

• Real estate syndications

• Rental income

• Dividend-focused funds

• Small business investments

Personally, I prefer mobile home parks because they generate consistent income without trading time for money.

If you already have growth-based mutual funds or index funds, you can gradually shift part of your portfolio into income-generating assets.

When cash flow covers 100% of your retirement budget, your dependence on market timing decreases dramatically.

Step 2: Plan for the Healthcare Gap

If you retire at 55, you may have a 10-year healthcare gap before Medicare. That’s real money.

Instead of scrambling later, create a separate bucket now for health care costs.

Max out your HSA if eligible. It’s triple tax-advantaged and can serve as a future healthcare fund.

Related:Health Savings Accounts: What Are the Pros and Cons of HSAs?

Build this into your retirement budget early, as healthcare expenses are one of the biggest blind spots for early retirees.

Step 3: Use the 55–65 Window Strategically

The years between 55 and 65 are powerful.

Your active income may drop, which can reduce your tax liability.

That creates an opportunity for:

• Roth conversions

• Rebalancing accounts

• Managing taxable accounts

• Controlling capital gains

Once Social Security income and required minimum distributions begin, flexibility decreases.

Work with a financial advisor or tax professional who understands early retirees, especially high earners. No advisory service can guarantee future results. But strategy matters.

Step 4: Define What You’re Retiring To

This is the part most people skip.

Many early retirees are running from burnout, stress, or long hours.

But they don’t know what they’re retiring to.

Golf and travel are fun…for a while.

But meaning matters.

Years ago, a skiing accident reminded me how fragile active income can be. That moment forced me to build other income sources. Eventually, I began teaching others how to do the same.

Speaking, creating content, and helping professionals design their financial future became part of my “retire to.”

Because of that shift, I reached work-optional status at 50.

Not because I stopped working.

But because I chose to.

That’s a completely different feeling.

So… Can You Retire at 55?

Yes, you can retire at 55.

But not by blindly following advice meant for someone earning a fraction of your income.

If you’ve built only one income stream, early retirement will feel risky.

If you build multiple income sources, especially cash-flowing assets, early retirement becomes predictable.

The difference is massive.

When you can clearly see what’s coming in and what’s going out, the fear drops.

And when passive income covers your expenses, you don’t have to rely solely on retirement savings withdrawals.

That’s when work becomes optional.

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